8.11 Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 5.0%...

Question

Question

8.11

Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 5.0% rate of inflation in the fut

Answer 1

Answer #1

Real return = ((1+nominal return)/(1+inflation rate)-1)*100

0.02=((1+Nominal return)/(1+0.05)-1)*100

Nominal return = 7.1

As per CAPM

expected return = risk-free rate + beta * (Market risk premium)

Expected return% = 7.1 + 2.2 * (5.5)

Expected return% = 19.2

Answer 2

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