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CAPM and Required Return
Calculate the required rate of return for XYZ, Inc. using the following information:
The investors expect a 3.0% rate of inflation, the real risk-free rate is 2.0%, the market risk premium is 6.0%. XYZ Inc. has a beta of 1.7. Over the past 5 years, the realized rate of return has average 13.0%.
nominal Rf w/inflation
5.06%
=(1+.02)*(1+.03)-1
required rate of return
5.16%
=.0506+(.0170*.06)
Is this correct?
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