4. Calculate the required rate of return for Slimax Inc., assuming that (1) investors expect a...

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

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Answer 1

Answer #1

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Nominal Risk Free Rate = (1 + Real Risk Free Rate) * (1 + Inflation rate) – 1
Nominal Risk Free Rate = (1 + 0.03) * (1 + 0.04) – 1
Nominal Risk Free Rate = 1.03 * 1.04 – 1
Nominal Risk Free Rate = 1.0712 – 1
Nominal Risk Free Rate = 0.0712 or 7.12%

Required Rate of Return = Nominal Risk Free Rate + Beta * Market Risk Premium
Required Rate of Return = 0.0712 + 1 * 0.05
Required Rate of Return = 0.0712 + 0.05
Required Rate of Return = 0.1212 or 12.12%

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