Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 3.7% rate...

Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 3.7% rate of inflation in the future. The real risk-free rate is 1.0%, and the market risk premium is 8.0%. Mudd has a beta of 1.8, and its realized rate of return has averaged 14.0% over the past 5 years. Round your answer to two decimal places.

Solutions

Expert Solution

Nominal risk free rate=real risk free rate+rate of inflation

=(3.7+1)=4.7%

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

=4.7+(8*1.8)

=19.1%

jeff jeffy answered 1 year ago

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