solution

Your share portfolio has an expected nominal total return of 9% pa and a nominal capital return of 6% pA. Inflation is expected to be 3% pA.All of the above rates are nominal effective rates and investors believe that they will stay the same in perpetuity. Which of the following statements is NOT correct?

a.

The real expected capital return is 2.9126%pa.

b.

The real expected total return is 5.8252% pa.

c.

The real expected dividend return is -0.0848% pa.

d.

If today’s share price is $10, in one year, the nominal price will be $10.60 and the real price will be $10.29.

e.

Following on from above, $10.29 will buy the same amount of goods and services now as $10.60 will buy in 1 year.