1. Consider two companies based in a country with an inflation rate of 2%.There is no real growth in earnings. The real rate of return required by global investors for this type of stock investment is 5%. (6 points)
2. (a)Assume that the Company A can only pass 60% of inflation through its earnings.
3. What should be its P/E using prospective earnings? Show your work.
4. (b)Assume that the Company B can pass the full inflation through its earnings. What
5. should be its P/E using prospective earnings? Show your work.