Calculate the required rate of return for Climax Inc, assuming that (1) investors expect a 4.0% rate of inflation...

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Answer 1

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Answer #1

c. 18.50%

Inflation rate = 4%

real risk free rate = 3%

thus,

Nominal risk free rate = 3%+4% = 7%

Required return can be computed with following equation:

risk free rate +beta market risk premium

r0.07+2.3*0.05

r0.070.115

0.185

r = 18.5%

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.

Answer 2

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