This preview shows page 1. Sign up to view the full content.
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...
View
Full
Document
This note was uploaded on 05/10/2010 for the course BUS 261 taught by Professor Shi during the Spring '10 term at Diablo Valley College.
 Spring '10
 Shi
 Dividends

Click to edit the document details