Calculate the required rate of return for Hope Inc., assuming that (1) investors expect a 1.5%...

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

1.5% rate of inflation in the future, (2) the real risk-free rate is 2.0%, (3) the market return on

S&P 500 Index is 10%, (4) the firm has a beta of 2.0, 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

=(2+1.5)=3.5%

Required return=Nominal risk free rate+Beta*(market rate-risk free rate)

=3.5+2*(10-3.5)

=16.5%

jeff jeffy answered 2 years ago

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