Danica Tribbiano believes expected inflation is 2.25% and the real rate of return is 2.75%. Based on this information, she estimates the risk-free rate of return is: OA. 5.00%. OB. 0.50%. OC.2.25%.

Q: Suppose you own an investment that had a total nominal return of 10.7% last year. If the inflation…

A: Variables in the question:Nominal return =10.7%Inflation rate = 3.7%

Q: Suppose the real risk-free rate is 3.00 %, the average expected future inflation rate is 4.00%, and…

A: It is a problem that requires calculating the rate of return on treasury securities having 1 year of…

Q: The following data are gathered: ·       The real risk-free rate is 1.05% ·       Inflation premium…

A: Treasury Bills: T-bills are the treasury bills issued by the government. These bills are risk-free…

Q: Suppose that the borrowing rate that your client faces is 5%. Assume that the equity market index…

A: Risk aversion is a human nature. Investor with risk aversion nature prefers lower return with low…

Q: i>0 is the effective annual interest rate, and r>0 is the annual inflation rate (with i>r). If i…

A: We have to find out if the real rate of return doubles, if nominal rate and inflation both doubles.

Q: Suppose one-year T-bills currently yield 5.00% and the future inflation rate is expected to be…

A: Risk free rate can be calculated by using below equation Risk free rate =1+nominal risk free…

Q: Far Horizon Journeys has an expected return of 9.90%, the risk-free rate is 2.20%, and the market…

A: Expected Return = 9.90% Risk Free Rate = 2.20% Market Risk Premium = 6.85%   Beta = ?

Q: uppose the real risk-free rate is 3.00%, the average expected future inflation rate is 6.60%, and a…

A: Here, Details of Ques-A: Real Risk Free Interest Rate is 3% Inflation Rate is 6.60% Maturity Risk…

Q: Suppose the real risk-free rate is 2.50% and the future rate of inflation is expected to be constant…

A: Treasury securities are risk free money market instruements issued by federal bank and rate of these…

Q: The risk-free rate is 2.9%, and expected inflation is 2.1%. If inflation expectations change such…

A: Risk free rate:The risk-free rate is crucial in finance and economics as it helps determine the…

Q: You want to earn a real rate of return of 6.50% at a time when the inflation rate is 3.25%. What is…

A: Interest refers to the amount charged by the lender on the lent amount. The borrower of the loan is…

Q: You know that the stated rate of return is not what you really earned. If the inflation rate last…

A: The inflation rate refers to the rate at which the value of the currency decreases over time and the…

Q: The risk free rate of interest is 2.0%. Inflation is expected to be 8.0% this year, 6.5% next year…

A: The rate on the bond can be calculated by adding up the risk-free rate, average inflation, liquidity…

Q: If the nominal rate is 10% and the inflation rate is currently 4.2%, what is the real rate of…

A: Irving Fisher developed the economic theory known as the "Fisher Effect," which explains how…

Q: suppose the real intrest rate is 2.5% and the inflation rate is 7% . what is the nominal intrest…

A: Solution:Nominal interest rate means rate of return after adjustment of inflation rate in the real…

Q: 4) If we require a 10% real return and we expect inflation to be 8%, what is the nominal rate based…

A: Real rate of return is inflation adjusted return after adjustment of inflation from the nominal…

Q: What would you expect the nominal rate of interest to be if the real rate is 5.3 percent and the…

A: Nominal Interest Rate: It refers to the rate of interest that does take into consideration the…

Q: What is your approximate real rate of return, if your portfolio generated nominal return of 9.87%…

A: Real rate of return means annual percentage return on investments and it is adjusted for inflation…

Q: The rate of inflation is 4.1%. What nominal rate of return will you need in order to achieve a 5.0%…

A: Nominal Rate of Return = {(1 + Real Interest Rate)} x {(1 + Inflation Rate)} - 1

Q: Suppose the real risk-free rate is 3.2%, the average future inflation rate is 1.9%, and a maturity…

A: The market interest rate refers to the profit that the market provides. It is calculated based on…

Q: What is Loco Inc's required rate of return if it has a beta of 0.82, that market risk premium of…

A: The below expression can be used to calculate the required return (without considering inflation):

Q: The following data are gathered for: · The real risk-free rate is 1.25% · Inflation premium is…

A: Real risk free rate = 1.25% Inflation premium = 2.50% Default risk premium = 5% Liquidity premium =…

Q: If an investor requires a real return of 3% and the average inflation rate is 4%, what is the lowest…

A: Given:Real return = 3% = 0.03Inflation rate = 4% = 0.04

Q: Assuming Lululemon has an expected return of 5.6%, treasury bills (risk free rate) yield 2.3% and…

A: according to CAPM model: expected return =rf+beta×rm-rf where, rf=risk free raterm=market return

Q: Suppose 1-year T-bills currently yield 7.40% and the future inflation rate is expected to be…

A: The theoretical rate of return on an investment or loan that bears no danger of financial loss owing…

Q: Suppose we observe the following rates: 1R1 = 4.1%, 1R2 = 4.9%, and E(21) = 4.1%. If the liquidity…

A: 1R1 = 4.1%1R2 = 4.9%E(2r1) = 4.1%

Q: What is the (exact) nominal return on an investment that earns a real return of 14.7% while…

A: Solution:- Nominal rate of return means the rate of return inclusive the effect of inflation.

Q: The real risk-free rate is 2.08%, inflation is expected to be 6.17% this year, and the maturity risk…

A: Real risk free rate = 2.08% Inflation rate = 6.17% Maturity risk premium = 0%

Q: investment is considered with a commensurate risk premium of 5.6%. The current market growth rate is…

A: Risk Premium = 5.6% Risk Free Rate = 1.3% Growth rate = 2%

Q: The expected inflation rate is 2.1%. What nominal interest rate is necessary to earn a real return…

A: The real rate of return is the net percentage of interest earned after adjusting the inflation rate.…

Q: Q21. Suppose your expectations regarding the stock price are as follows: Time Return 1 0.10 2 -0.15…

A:

Q: b. The current market provides a return of 10% and treasury bills yields 3%. i. Calculate the…

A: In the given question we require to calculate the required rate of return of an asset using…

Q: Suppose we observe the following rates: 1R1 = 6.7, 1R2 = 7.4, and E(2r1) = 6.7. If the liquidity…

A: The liquidity premium theory refers to the concept that argues that bonds with a longer term of…

Q: Give typing answer with explanation and conclusion to all parts The real risk-free rate, r*, is 2%,…

A: All the determinants of yields have been provided. The treasury yield for 3 years, and 6 years…

Q: If we require a 5% real return and we expect inflation to be 2%, what is the nominal rate of…

A: Nominal rate of interest =Real return + inflation.

Q: Suppose that -7% (n=1), and that future short term (1 year) interest rates are expected to be 5% and…

A: The liquidity premium theory of interest rates: The liquidity premium theory of interest rates…

Q: Consider the following data related to rates and inflation: denotes the real rate of return: 5% the…

A: Fisher effect consider the impact on inflation on the interest rate. Approximate nominal rate= real…

Q: Investors expect a 2.0% rate of inflation in the future.  The real risk-free rate is 1.0%, and the…

A: The minimal profit or return an investor will seek or expect in exchange for taking on the risk of…

Q: If the expected inflation rate is 3.45%, the realized real rate of return is 3.80%, and the actual…

A: Expected Inflation Rate is 3.45% Realized Real Rate of Return is 3.80% Actual Inflation Rate is…

Q: Nominal rates are currently 5.96%, and the estimate of expected inflation is 3.45%. Use the…

A: The precise Fisher equation is given by1+i=(1+r)(1+π)Where:i is the nominal interest rate,r is the…

Q: suppose that real risk free rate is 3.40% and the future rate of inflation is expected to be…

A: Real Risk-Free Rate = 3.40%Expected Inflation Rate = 1.50%

Q: assuming Treasury bills yield is 1% and the market risk premium is 7%. If your portfolio beta is…

A: Risk free rate (Rf) = 0.01 Market risk premium (Mp) = 0.07 Beta (b) = 0.25   Expected return = ?…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.