You Expect the Inflation Rate to Be 3

Multiple Choice

You expect the inflation rate to be 3.8 percent and the U.S.Treasury bill yield to be 3.9 percent for the next year.The risk premium on small-company stocks is 12.6 percent.What nominal rate of return do you expect to earn on small-company stocks next year?

A) 15.5 percent
B) 16.5 percent
C) 16.8 percent
D) 9.2 percent
E) 8.8 percent