Given Information : 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%.

Related Parts to Question 22

A . What is expected annual inflation over the next 5 years?

B. What is the expected annual growth in real Earnings Per Share for the index?

C. What is the expected annual growth in nominal Earnings Per Share for the index?

D. What is the market risk premium?Labor Productivity 2.50%

E. Assuming a firm has a beta of 2.5, what is the risk premium on the firm's equity?