1. Suppose that Apple’s profits have always been expected to grow twice as fast as Microsoft’s. Does it necessarily make Apple stock a better investment than Microsoft stock based on the Efficient Markets Hypothesis? Briefly explain.
2. Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 4.8% rate of inflation in the future. The real risk-free rate is 3%, and the market risk premium is 5.5%. Mudd has a beta of 2.3, and its realized rate of return has averaged 8% over the past 5 years. Round your answer to two decimal places.