At the beginning of the year you bought 100 shares of Google

At the beginning of the year, you bought 100 shares of Google common stock for $105, and over the course of the year, the company paid a dividend of $5 per share. At the end of the year, you sell your 100 shares for $110. The inflation rate for the year was 2 percent. The nominal return on your investment was percent. (Round your answer to two decimal places.)

Solution

100 shares are purchased for $105 per share.

Purchase cost = 100 * $105 = $10,500

Dividend received = $5 per share

Total dividend received = 100 * $5 = $500

Sale price = $110 per share

Total sales receipt = 100 * $110 = $11,000

Total earnings from shares = $11000 + $500 = $11,500

Profit from shares = Total earning from shares - Purchase cost = $11,500 - $10,500 = $1000

Calculate nominal return on investment -

Nominal return = (Profit/Purchase cost) * 100

Nominal return = ($1000/$10500) * 100 = 9.52%

The nominal return on investment was 9.52%