The expected return on a share of ExxonMobil stock in the U.S. is 7.6% while the expected return on a share of Royal Dutch Shell stock is 8.8% in the Netherlands. The pure rate of return is 2% in both countries and the risk premium is 3% for each company's stock.

Required:

 A. What is the long-term expected inflation rate in the U.S. if the multiplicative form of the Fisher model is used in making the calculation? (Please carry your final answers out to 2 decimal places.)

B. What is the long-term expected inflation rate in the Netherlands, if the multiplicative form of the Fisher model is used in making the calculation? (Please carry your final answers out to 2 decimal places.) A Your answers to this open-ended assignment should be placed in the space below this line.

Answer rating: 100% (QA)

1 Normal rate of return 760 real rate of return 5 32 Inflation rate in US 0... View the full answer