Using the Data listed in the table below to answer the following parts:

Part A: Find the Expected Inflation

****PARTS B & C: Find in ANNUAL terms.

Part B: Find Expected Growth in REAL EPS Growth for the index

Part C: Find Expected Growth in NOMINAL EPS per share for the index

Part D: Find the Market Risk Premium

Part E: Assuming a firm has a beta of 2.5, what is the risk premium on the firms equity?

Assumptions:

The index is expected to pay dividends of $4 and is currently traded at $100.

The current yield on 5-year TIPS is 3.50%, and on 5-year Treasury notes is 6.5%.

Labor productivity is expected to grow at 2.5%, and labor supply at 1.0%.

Since you believe the index is under- valued, you expect the average PE will increase by 4%.