Question 1. (30 marks) a. During the past year, you had a portfolio that contained government treasury bills, long- terrn government bonds. and common stocks. The rates of return on each of them were as follows: Government treasury bills 5% Government long-term bonds 7% Common stocks 1 1% During the year, the consumer price index. which measures the rate of ination, went from 140 to 147'. l. Compute the rate of ination during this year. (4 marks) ll. Compute the real rates of return on each of the investments in your portfolio based on the ination rate. (12 marks) b. Assume that the consensus required rate of relum on common stocks is 12 percent. In addition. OECD forecasts that the expected rate of ination is 5 percent and the estimated long-term real growth rate of the economy is 2 percent. |. What interest rate would you expect on government treasury bills? (7 marks) ll. What is the approximate risk premium for common stocks implied by these data? {7 marks)