8. Kollo Enterprises has a beta of 1.10, the real risk-free rate is 2.00%, investors expect a 3.00% future inflatio...

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Answer 1

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Answer #1

Risk free rate = 2%

Beta = 1.1

Market risk premium = 4.7%

Required rate of return using CAPM and real risk free rate of return = (2%+ 1.1 * 4.7%) = 7.17%

If nominal rate is considered, Nominal risk free rate of return = Real rate + Inflation = 2% + 3% = 5%

Required rate of return using nominal risk free rate of return = (5% + 1.1*4.7%) = 10.17%

Answer 2

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