You are analyzing the U.S. equity market based upon the S&P 500 Index and using the present value of free cash flow to equity technique. Your inputs are as follows: Beginning FCFE: $80 k = 0.09 

a. Assuming that the current value for the S&P 500 Index is 2,050, would you underweight, overweight, or market weight the U.S. equity market? 

b. Assuming that there is a 1 percent increase in the rate of inflation, what would be the market's value, and how would you weight the U.S. market? State your assumptions.

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Growth Rate: Years 1-3: 9% 4-6: 8% 7 and beyond: 7%