1. You are estimating the equity risk premium for a country. Based on a sample of firms from its stock marker, you estimate the average dividend yield to be 2% (assume no reinvestment return). The countrys labor productivity is expected to increase by 3% and Labor Supply by 2%. Treasuries pay 4% and TIPS pay 1.8%. The Average P/E on the firms in your sample is 24, but you believe that the market is overvalued, and that market P/E will contract by 1.5%.

1. What is the expected growth in Nominal EPS for the Country?

2. What is expected inflation for the country?

3. What is the equity risk premium for the country? (3pts)