The nominal rate of interest is composed

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Reference no: EM131621226

1. The nominal rate of interest is composed of

the real rate plus an inflationary expectation.

the real rate plus a risk premium.

the risk-free rate plus an inflationary expectation.

the risk-free rate plus a risk premium.

2. MG recently paid a dividend of $1.75 per share, is currently expected to grow at a constant rate of 6%, and has a required return of 12.5%. MG has been approached to buy a new company. MG estimates if it buys the company, its constant growth rate would increase to 7.0%, but the firm would also be riskier, therefore increasing the required return of the company to 13%. If MG goes ahead with the purchase of the new company, will the value of MG increase or decreased by_________ per share?

Please show work.

Reference no: EM131621226

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