Supposed you know that the discount rate applied to the expected cash flows of a company's security (e.g. stock) is 12%. You have also calculated its risk premium to be 5%. If the relevant real interest rate is 2% and you believe the market agrees with your calculation, this implies an (average) expected inflation rate of: answer is 5%. please show all work.

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To calculate the average expected inflation rate we can use the Fisher equation which relates the no... View the full answer