If inflation expectations increase what would you expect to


1. If inflation expectations increase, what would you expect to happen to the returns required by investors in bonds? What would happen to bond prices?

2. ABC is expected to pay its first annual dividend of 1.00 per share two years from now. Starting in year 6, the company is expected to start increasing the dividend by 2 percent per year. What is the value of this stock today at a required return of 12 percent?

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Financial Management: If inflation expectations increase what would you expect to
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