The CEO of a startup company wants to offer employees a stock program with a real growth rate of 6%. If the current inflation rate is 3%, what should the annual yield for the stock program be?

Question

Quizplus · Accepted Answer

To achieve a real growth rate of 6% in the presence of a 3% inflation rate, the nominal rate (annual yield) must be calculated using the formula: (1 + real growth rate) * (1 + inflation rate) - 1. Substituting the given values: (1 + 0.06) * (1 + 0.03) - 1 = 1.0618 - 1 = 0.0918 or 9.18%.

The CEO of a Startup Company Wants to Offer Employees