Question #33202

The real risk-free rate is 2.50%, investors expect a 3.50% future inflation rate, the market risk premium is 5.50%, and Krogh Enterprises has a beta of 1.40. What is the required rate of return on Krogh's stock? (Hint: First find the market risk premium.) (Points : 5) 13.70% 14.50% 15.30% 16.10% 16.90%

Expert's answer

Required rate of return = risk free rate + beta (expected market return - risk free rate) + inflation = risk free rate + beta*market risk premium + inflation = 0.025 + 1.4*0.055 + 0.035 = 0.137 or 13.7%

So, the right answer is b) 13.70%

So, the right answer is b) 13.70%

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