Almas Mohammed Paid $50 for a Stock of Jones Inc

question 3

Short Answer

Almas Mohammed paid $50 for a stock of Jones Inc. and expects to earn an annual dividend of $5. If the price of the stock increases to $55 in a year's time, compute the real rates of return from this investment if:
A) the expected inflation rate a year from now is 1.25%.
B) the expected inflation rate a year from now is 3%.

• A) the expected inflation rate a year from now is 1.25%.
• B) the expected inflation rate a year from now is 3%.

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Definitions:

Addition Rule

In probability, a rule that calculates the likelihood of any of two or more mutually exclusive events occurring.

Automobile Accident

An unexpected event involving a vehicle that usually results in damage and/or injury.

Mutually Exclusive

Events or conditions that cannot occur simultaneously or cannot both be true at the same time.

Addition Rule

A principle in probability theory that determines the probability of the occurrence of at least one of two events, taking into account their joint probability if they are not mutually exclusive.