Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 3.8% rate...

Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 3.8% rate of inflation in the future. The real risk-free rate is 1.5%, and the market risk premium is 8.0%. Mudd has a beta of 2.6, and its realized rate of return has averaged 12.0% over the past 5 years. Round your answer to two decimal places.

%

Expert Solution

Nominal risk free rate=Real risk free rate+Rate of inflation

=(1.5+3.8)=5.3%

Required return=Nominal risk free rate+Beta*market risk premium

=5.3+(2.6*8)

=26.1%

jeff jeffy answered 2 years ago

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