Question 1.

1. Suppose 1 year T-Bills currently yield 7.00% and the future inflation rate is expected to be constant at 3.20% per year. What is the real risk of return?
2. Suppose the real risk-free rate is 2.50% and the future rate of inflation is expected to be constant at 4.10%. What rate of return would you expect on a 5 year treasury security, assuming the pure expectations theory is valid?

Question 2.

For 2015, Everyday Electronics reported $22.5 million of sales and $18 million of operating costs (including depreciation). The company has $15 million of total invested capital. Its after-tax cost of capital is 9%, and its federal-plus-state income tax rate was 35%. What was the firms economic value added (EVA), That is, how much value did management add to stockholders wealth during 2015?