Real versus nominal returns. you purchase 100 shares of stock for $40 a share. the stock pays a $2 per share dividend at year-end. (lo11-2) a. what is the rate of return on your investment if the end-of-year stock price is (i) $38; (ii) $40; (iii) $42b. what is your real (inflation-adjusted) rate of return if the inflation rate is 3%?

a.

(i)  Rate of return=(2+(38-40))/20=0%

(ii) Rate of return=(2+(40-40))/20=10%

(iii)Rate of return=(2+(42-40))/20=20%

b.

(i) Real rate of return=(1+0%/1+3%)-1=0%

(ii) Real rate of return=(1+10%/1+3%)-1=6.8%

(iii) Real rate of return=(1+20%/1+3%)-1=16.50%

Explanation:

a. The return on any stock can be calculated using the below formula

Return=(Dividend+Capital gain)/Opening value of stock

Where Capital gain=Closing value of stock- opening value of stock.

Using the formula above

(i)  Rate of return=(2+(38-40))/20=0%

(ii) Rate of return=(2+(40-40))/20=10%

(iii)Rate of return=(2+(42-40))/20=20%

b. The Real rate of return can be calculated using the below formula:

Real rate of return=(1+ rate of return/1+inflation rate)-1

(i) Real rate of return=(1+0%/1+3%)-1=0%

(ii) Real rate of return=(1+10%/1+3%)-1=6.8%

(iii) Real rate of return=(1+20%/1+3%)-1=16.50%

d, conspicuous consumption is when you try to increase your wealth or social status (and in the case he's trying to create the perception of wealth considering he can't really afford it)

a

explanation: