Part A. What would be the required rate of return on an investment in an economy with
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Question:
Part A. What would be the required rate of return on an investment in an economy with a 3% real rate of return, expected inflation of 4%, and a risk premium of 4%? What would you expect $1000 invested at this rate to grow to after ten years? After twenty years?
Part B. Compute the required rate of return under the following scenarios:
a) Real rate =5%, expected inflation =6%, risk premium=2%
b) Real rate =3%, expected inflation =8%, risk premium=3%
c) Real rate =4%, price index expected to change from 145 to 151, risk premium =5%
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