Asked by
Tanvi Maini
on Nov 28, 2024
Verified
The real risk-free rate is 2%,the expected inflation rate is 3.00%,the market risk premium is 4.70%,and Kohers Enterprises has a beta of 1.10.What is the required rate of return on Kohers' stock?
A) 9.43%
B) 9.67%
C) 9.92%
D) 10.17%
Real Risk-Free Rate
The rate of return on a risk-free investment, such as government treasury bills, adjusted for inflation, representing the true earning power of the investment.
Expected Inflation Rate
The predicted average rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
Market Risk Premium
The additional return that investors demand for holding a risky market portfolio instead of risk-free assets.
- Understand the Capital Asset Pricing Model (CAPM) and its utility in calculating required returns on stocks.
Verified Answer
DM
Learning Objectives
- Understand the Capital Asset Pricing Model (CAPM) and its utility in calculating required returns on stocks.