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For this question, the time given confuses me. I know the rate of return is just total return divided by divided by investment, Assuming that Matt received the $400 in dividends as cash payouts, and they weren't reinvested into buying shares of the stock, then his total return over two years was $500, Now, if Matt's dividends were reinvested into the stock - and if you have a 401(k) or IRA, that's what usually happens - then his ROI would have been only 6% because he only made a profit of $100 on an investment of $1500. Note: In the real world, in current market conditions, Matt probably would have got about a 5% return on a good stock, and Bella would have received about 0.05% on a savings account.
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Matt probably would have got about a 5% return on a good stock.
How to find the rate of return?
The rate of return is just the total return divided by investment.
Consider that Matt received the $400 in dividends as cash payouts, and they weren't reinvested into buying shares of the stock, then his total return over two years was $500.
Now, if Matt's dividends were reinvested into the stock then his ROI would have been only 6% because he only made a profit of $100 on an investment of $1500.
In the real, current market conditions, Matt probably would have got about a 5% return on a good stock, and Bella would have received about 0.05% on a savings account.
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