Use the following information for the next 5 questions. You are using an index to help you determine the market risk premium. The index is expected to pay dividends of $8 and is currently traded at $200. The current yield on 5-year TIPS is 3.2%, and on 5-year Treasury notes is 5.7%. Labor productivity is expected to grow by 1.8%, and labor supply by 1.7%. Since you believe the index is under- valued, you expect the average PE will increase by 3%. Answer the following questions

1. What is expected annual inflation over the next 5 years?
2. What is the expected annual growth in real Earnings Per Share for the index?
3. What is the expected annual growth in nominal Earnings Per Share for the index?
4. What is the market risk premium?
5. Assuming a firm has a beta of 1.5, what is the risk premium on the firms equity?