Answer to Question #122190 in Finance for Nour mourad

Question

9. Shanz Enterprises has a beta of 1.28, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Kollo's required rate of return?

Answer 1

Risk free rate = 2%

Beta = 1.28

Market risk premium = 4.7%

Required rate of return using CAPM and real risk free rate of return = (2%+ 1.28 * 4.7%) = 8.016%

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% + 1.28*4.7%) = 11.016%