The price of a stock is $55 at the beginning of the year and $50 at the end of the year. If the stock paid a $3 dividend and inflation was 3%, what is the real holding-period return for the year?
A) -3.64%
B) -6.36%
C) -6.44%
D) -11.74%

Question

Quizplus · Accepted Answer

Nominal return on stock: (50 + 3)/55 - 1 = -3.64%
Real return: (1 + R) = (1 + r)(1 + i)
1 + r = (1 - .0364)/(1.03) = .935
R = .935 - 1 = -.0644

The Price of a Stock Is $55 at the Beginning