Calculate the required rate of return for ABC Corporation assuming that the real risk- free rate is 3%
Calculate the required rate of return for ABC Corporation assuming that the real risk- free rate is 3% and that investors expect inflation to equal 3.5%. The market risk premium is estimated at 7% and the beta for ABC is 1.8. 3 points
Homework Answers
Risk-free rate = 3% + 3.5% = 6.5%
Required rate of return = Risk-free rate + Beta(Market risk premium)
Required rate of return = 0.065 + 1.8(0.07)
Required rate of return = 0.191 or 19.1%
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Calculate the required rate of return for ABC Corporation assuming that the real risk- free rate is 3%
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