Question

You purchase 100 shares of stock for $40 a share. The stock pays a $2 per share dividend at

year-end.

a. What is the rate of return on your investment if the end-of-year stock price is (i) $38; (ii) $40; (iii) $46? (Enter your answers as a whole percent.)

b. What is your real (inflation-adjusted) rate of return if the inflation rate is 3% stock price is (i) $38; (ii) $40; (iii) $46? (Enter your answers as a percent rounded to 2 decimal places. Negative amounts should be indicated by a minus sign.)

Please explain this question

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