Finance. Inflation rate

Question

The expected rate of return on a share of XYZ Company stock in the U.S is 17% while the rate of return on a share of stock of THZ Company in the Netherlands is 15%. If the pure rate of return is 3% in each country and the required risk premium is 8% for each company’s stock, what is the anticipated long term inflation rate in each country?

Answer 1

The required rate of return in the U.S. is
Pure rate                   3%
Risk Premium            8%
Inflation Premium      6%
Total rate                          17%

 

In The Netherdlans it is
Pure Rate                   3%
Risk Premium             8%
Inflation Premium       4%
Total Rate                         15%

Projected inflation rate in U.S= 6%

Projected inflation rare in Nederlands 4%