During a 3months period the price index increases from 14050

During a 3-months period, the price index increases from 140.50 to 141.30. During the same period, a stock increases in price from $50 to $51.90.

What is the real rate of return on the stock for the 3-month period?

Express your answer as a percentage; for example, 3.18% should be entered as 3.18 without the percentage sign.

Solution

Price index increase = (141.30-140.5)/140.5 = .005693 - inflation.

Stock increase = (51.9-50)/50 = .038.......nominal return

Real Rate of Return = (1 + Nominal Rate) / (1 + Inflation Rate) – 1

(1 + .038 / 1 + .005693) - 1 = 3.21