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a)Real rate of return =nominal rate - inflation rate = 5-2 = 3% b)After tax...

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Finance

a)Real rate of return =nominal rate - inflation rate = 5-2 = 3% b)After tax real rate of return : Real rate ( 1- tax rate) = 3(1 -.30) = 2.1% c)New nominal rate: 3 Real rate +4 Inflation rate = 7% **inflation rate (new) = 2+2 = 4% d)With increase in expected inflation rate , yield on bonds /expected rate for stocks increases resulting in decreased prices. This is so because due to inflation,required return by stockholders /bond holders increases resulting in falling prices.

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