Suppose workers notice a fall in their nominal wage but are slow to notice that the price 0fthings (actual
p ‘ce level!) they consume have fallen by the same percentage. They may infer that the reward to working is
é temporarily low and so supply a smaller quantity of labor.
. temporarily low and so supply a larger quantity of labor.
c. temporarily high and so supply a smaller quantity of labor.
d. temporarily high and so supply a larger quantity of labor.

Temporarily low and so supply a smaller quantity of labor.

Explanation:

Because workers see that their nominal wages are falling, but they fail to see that the price level of goods and services also has fallen by the same percentage (meaning that their real wage has not fallen, but stayed the same), they will likely believe that the reward for their labor is less, so they will have less incentive to work, supplying a smaller quantity of their labor force in the process.

14.95%

Explanation:

First we will determine the market risk premium which shall be calculated as follows:

Market risk premium=Expected annual return of market-Risk free return

In the given question

Expected annual return of market=13%

Risk free return=Return on T-Bonds=6.5%

Market risk premium=13%-6.5%=6.5%

Based on above Market risk premium, the firm required return shall be calculated as follows:

Firm required return=Risk free return+Beta*Market risk premium

                                   =6.5%+1.30*6.5%

                                   =14.95%