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

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

1% rate of inflation in the future, (2) the real risk-free rate is 3%, (3) the market risk premium

is 5.0%, (4) the firm has a beta of 1.2, and (5) its realized rate of return has averaged 10.0%

over the last 5 years.

Expert Solution

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

=(3+1)=4%

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

=4+(1.2*5)

=10%

jeff jeffy answered 2 years ago

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