The Real Return from Investing $100 in a Stock for a Year

question 109

Short Answer

The real return from investing $100 in a stock for a year is computed to be 2%. If the nominal return from this investment is 3.5%, what is the expected inflation rate?

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Definitions:

Share Weighted Index

A stock market index in which each company is weighted according to the total value of its outstanding shares.

Price Weighted Index

A stock market index in which each company's stock influences the index in proportion to its price per share.

Adjustable Rate Mortgage

A type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan according to market conditions.

Fixed Rate Mortgage

A mortgage in which the interest rate remains constant throughout the term of the loan.