Assume the expected long-run growth rate of the economy increased by 1% and the expected rate inflation increased by 4%.
What would happen to the required rates of return on government bonds and common stocks?
Show graphically how the effects of these changes would differ between these alternative investments.
Required Rate of Return:
This question calls for familiarity with a required rate of return, which is the rate an investor demands in exchange for assuming the risks associated with a given investment. Higher risk investments necessitate higher rates of return.
Answer and Explanation: 1
If the expected long-run growth rate of the economy increased by 1% and the expected rate of inflation increased by 4%, the required rates of return...
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fromChapter 1 / Lesson 29
Learn about the required rate of return. Understand what the required rate of return is, examine the required rate of return formulas, and learn how to calculate it.