The first column of the following table describes the price movement of AOL Corporation stock over a five-year period. The second column gives the period's consumer price index

Calculate the real value of the stock for each time period using year 5 as the base year. If you purchased $1,000 worth of AOL Corporation in year 1, what has happened to the purchasing power of your original $1,000 investment when you sell the stock in year 5? Year AOL CPI 1996 $4.00 147.8 1997 $3.84 155.3 1998 $7.00 163.0 1999 $37.00 165.4 2000 $70.00 172.1

Year Real AOL Stock Price in 2000 Dollars
1996 $4.66
1997 $4.26
1998 $7.39
1999 $38.50
2000 $70.00

The real value of a year 1996 dollar in 2000 is 172.1($1)/147.8 = $1.16. I would have bought 250 shares of AOL at 1996 prices (ignoring transaction costs) with the $1,000. The value of the stock in the year 2000 is (250($70)) = $17,500. The change in my purchasing power is
($17,500 - $1,160)/$1,160 = 14.09. That is, my purchasing power from investing in the stock rises by 1,409%.