Problem:
You expect the inflation rate to be 3.8 percent and the U.S. Treasury bill yield to be 3.9 percent for the next year. The risk premium on small-company stocks is 12.6 percent.
Required:
Question: What nominal rate of return do you expect to earn on small-company stocks next year?
- 15.5 percent
- 8.8 percent
- 9.2 percent
- 16.8 percent
- 16.5 percent
Note: Show all workings.