Walmart has a beta of 0.95, the real risk-free rate,ris 2.50%, investors are expecting a 1.50%...

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Walmart has a beta of 0.95, the real risk-free rate,ris 2.50%, investors are expecting a 1.50% future inflation rate, and the

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Answer 1

Answer #1

Since the Risk Free Rate given is real inflation will be added to making it nominal Risk Free Rate of return.

That means nominal Risk Free Rate = 2.5% + 1.5% = 4.0%

Note that only if question says that Risk Free Rate of return is real you should add inflation rate to it. In case the question says Risk Free Rate is nominal or is silent then you can ignore the inflation rate.

Security Market Line equation says, Required rate of return = Risk Free Rate of return + Beta * Market Premium.

= 4% + 0.95 * 5.40%

=4% + 5.13%

= 9.13%

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Answer 2

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Walmart has a beta of 0.95, the real risk-free rate,ris 2.50%, investors are expecting a 1.50%...

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