1. A group of economists has estimated that the long-run real rate of growth of the U.S Economy over the next five-year period will average 3 percent. In addition, the group of economists forecast the average annual rate of inflation during this five-year period will be 4 percent.

1. What nominal rate of return would you expect on U.S. government T-bills during this period?
2. What would your required rate of return be on common stocks if you wanted a 5 percent risk premium?