(a) ABC Inc.'s stock has a 25% chance of producing a 10% return, a 50%...
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(a) ABC Inc.'s stock has a 25% chance of producing a 10% return, a 50% chance of producing a 8% return, and a 25% chance of producing a -10% return. What is the firm's expected rate of return.
(b) Calculate the required rate of return for Food Inc. Assuming that (1) investors expect a 4% rate of inflation in the future, (2) the real risk-free rate is 4%, (3) the market portfolio return is 8%, (4) the firm has a beta of 1.20, and (5) its realized rate of return has averaged 14.0% over the last 5 years. (Hint: You will need to get the market premium first in the CAPM model).
Hint: You need to find out market risk premium first.
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