In: Finance
As per CAPM the required Rate of return of WCE =Risk Free
Rate+Beta*(Market Return-Risk Free Rate) =4%+1.2*3% =7.60%
When inflation increase by 2% the required Rate of return of WCE
=Inflation + Risk Free Rate+Beta*(Market Return-Risk Free Rate)
=2%+4%+1.2*3% =9.60%
If Risk Aversion increase by 1% then new beta =1.2*(1-1%)
=1.188
As per CAPM the required Rate of return of WCE =Risk Free
Rate+Beta*(Market Return-Risk Free Rate) =4%+1.188*3% =7.56%
When inflation increase by 2% and If Risk Aversion increase by 1%
then new beta =1.2*(1-1%) =1.188
As per CAPM the required Rate of return of WCE =Inflation+Risk Free
Rate+Beta*(Market Return-Risk Free Rate) =2%+4%+1.188*3%
=9.56%