Suppose that five years ago Seth Adams (a student in our class) bought a share of stock in Famous Brands (a South African fast food company) for 53.35 South African Rand. Today the stock price of Famous Brands is 133.34 Rand. Over the same time period, South African inflation was 5.7% per year.
(a) What would be his annual real rate of return?
(b) Assuming a pizza from Debonairs (one of Famous Brands’ concepts) cost 53.35 Rand five years ago (the same price as a share of Famous Brands stock) and has increased in price at the same rate as overall inflation, if he sold his share of stock today, how many pizzas could he buy?