Question

Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 3.7% rate of inflation in the future. The real risk-free rate is 1.5%, and the market risk premium is 4.5%. Mudd has a beta of 2.3, and its realized rate of return has averaged 9.5% over the past 5 years. Round your answer to two decimal places. %

Answer 1

Answer:

15.55%

Explanation:

Calculation for the required rate of return for Mudd Enterprises

Using this formula

Required rate of return=Risk free rate+(Market risk premium +Stock beta)

Let plug in the formula

Required rate of return=(3.7%+1.5%)+4.5%(2.3)

Required rate of return=5.2%+0.1035

Required rate of return=0.1555*100

Required rate of return=15.55%

Therefore the Required rate of return is 15.55%