What is WCE's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. ? % If inflation increases by 1% but there is no change in investors' risk aversion, what is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places. ? % Assume now that there is no change in inflation, but risk aversion increases by 2%. What is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places. ? %
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.
Quantitative Problem: You are given the following information for Wine and Cork Enterprises (WCE):
rRF = 4%; rM = 9%; RPM = 5%, and beta = 1
What is WCE's required
? %
If inflation increases by 1% but there is no change in investors' risk aversion, what is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places.
? %
Assume now that there is no change in inflation, but risk aversion increases by 2%. What is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places.
? %
If inflation increases by 1% and risk aversion increases by 2%, what is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places.
? %
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