Timothy Keating Invested $120 in Buying a Share of Company

question 12

Multiple Choice

Timothy Keating invested $120 in buying a share of company X in June last year. Although the company had announced that it will not pay any dividend, the price of this share has increased over the last few months and is expected to go up to $140 by June this year. If the expected annual inflation rate in June this year is 5%, calculate Timothy's real rate of return from this investment if he sells the share at $140.

• A) 11.11%
• B) 14.29%
• C) −22.22%
• D) −10%

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Definitions:

Purchase Returns and Allowances

Concessions granted by sellers to buyers, involving the return of goods or issuance of allowances for unsatisfactory products or services.

Purchase Discounts

Reductions in the price of goods that a buyer is entitled to for early payment or volume purchases.

Freight-In

Costs associated with bringing inventory to a business location, typically included in the inventory cost.

GAAP

Generally Accepted Accounting Principles; the standard framework of guidelines for financial accounting used in any given jurisdiction, commonly the U.S.