Charlotte purchased a common share for $50 one year ago.She received $2.40 in dividends and then sold the share for $52.If the inflation rate over the year was 2.6%, her exact real rate of return is

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The real rate of return adjusts the nominal return for the effects of inflation. Charlotte's nominal return includes both the dividend received and the capital gain from selling the share. The nominal return is calculated as: $$ \text{Nominal Return} = \frac{\text{Dividend} + (\text{Selling Price} - \text{Purchase Price})}{\text{Purchase Price}} \times 100\% $$ $$ \text{Nominal Return} = \frac{2.40 + (52 - 50)}{50} \times 100\% = 8.8\% $$ The real rate of return is calculated using the formula: $$ \text{Real Rate of Return} = \frac{1 + \text{Nominal Rate}}{1 + \text{Inflation Rate}} - 1 $$ $$ \text{Real Rate of Return} = \frac{1 + 0.088}{1 + 0.026} - 1 \approx 6.04\% $$

Charlotte Purchased a Common Share for $50 One Year Ago