Question

Barker Corp. has a beta of 1.10, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Barker's required rate of return?a. 9.43%b. 9.67%c. 9.92%d. 10.17%e. 10.42%

Answer 1

Answer:

The correct option is D

Explanation:

The formula to compute the required rate of return is:

Required rate of return of Barker = (Risk free rate + Expected Inflation rate) + (Market Risk premium × Beta

                                                       = (2.00% + 3.00%) + (4.70 %× 1.10)

                                                       = 5 %+ 5.17%

                                                       = 10.17%

Therefore, the required rate of return of Barker is 10.17.%