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2 pages/≈550 words
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APA
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Literature & Language
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English (U.S.)
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# Nominal and Real Returns (Essay Sample)

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Nominal and Real Returns
[Name]
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Abstract
This paper considers the different prices of stock of a company in terms or nominal and great returns. Nominal price is the price in dollars or any other currency notwithstanding the purchasing power of the money at that specific time, while real price is the adjusted price in accordance with a specific point of time. It would also discuss the effect of discount rates on the price of stock.
Nominal and Real Returns
The stock which I selected was Apple Inc. This company has showed a remarkable increase in price of stock over the past five years. Rate of return of the stock is very high. Following is the summary of information regarding prices of stock in the month of February in the past five years, and the nominal and real rates of return.
Prices of Stock of AAPL in Past 5 Years
Year – MonthPrice2006 – February\$70.292007 – February\$84.832008 – February\$119.462009 – February\$91.22010 – February\$201.67(Source: Yahoo Finance)
The lowest point in the trend of stock price can be seen in the year 2006, while the peak of price of the stock can be seen in the year 2010.
Calculation for Real Rate of Return
From the above trend of prices of stock, it can be inferred than the price has continuously increased. But this increased price is merely nominal price and not the price in real terms. It can also be concluded that in the year 2009 the price went down but in 2010 it increased it peak point. For an investment of \$1000 in the year 2006, 14.2 shares were acquired, and the current selling price of shares is \$201.67. Therefore the value of 14.2 shares is \$2868.15. The nominal rate of return is (\$2868.15 - \$1000)/ \$1000 = 1.86815 * 100 = 186.81%. This is the rate of return without any adjustment for inflation. The rate of return with the adjustment of inflation is known as real...
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