Unformatted text preview: rate of return = [(22 – 28) +0.70] / 28 = 0.19 rate of return = 0.19 * 100% = 19% 3. Assume the real rate of return in the economy is 2.5%, the expected rate of inflation is 4%, and the risk premium is 5.9%. Compute the riskfree rate and required rate of return. riskfree rate = (1 + real rate) (1 + expected rate of inflation) – 1 riskfree rate = (1+.025) (1 + .04) 1 = .066 riskfree rate = .066 * 100% = 6.6% required return = riskfree rate + risk premium required return = 6.6% + 5.9% = 12.5...
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 Spring '10
 Shi
 Dividends, 4%, $28, 2.5%, $25, $22

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