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Christina purchased 200 shares of stock at a price of $62.30 a share and sold them for $70.25 a share. She also received $148 in dividends. If the inflation rate was 4.2 percent, What was her approximate real rate of return on this investment?A. 24.20 percentB. 9.75 percentC. 18.15 percentD. 13.95 percentE. 14.20 percent

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Answer:

B) 9.75 percent

Explanation:

Christina's net gains with this operation was:

  • $148 in dividends
  • 200 shares x ($70.25 - $62.30) = 200 x $7.95 = $1,590

total gain = $148 + $1,590 = $1,738

Christina invested 200 x $62.30 = $12,460

her nominal rate of return = $1,738 / $12,460 = 13.95%

if the inflation rate was 4.2%, then her real rate of return = 13.95% - 4.2% = 9.75%

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