Question
1. Using Formula 7 1 on page 165, compute R F (risk-free rate). The real rate of return is 3 percent and the expected rate
1. Using Formula 71 on page 165, compute RF (risk-free rate). The real rate of return is 3 percent and the expected rate of inflation is 5 percent.
2. If RF = 6 percent, b = 1.3, and the ERP = 6.5 percent, compute Ke (the required rate of return). ERP = Equity Risk Premium.
3. If in problem 2 the beta (b) were 1.9 and the other values remained the same, what is the new value of Ke? What is the relationship between a higher beta and the required rate of return (Ke)?
4. Assume the same facts as in problem 2, but with an ERP of 9 percent. What is the new value for Ke? What does this tell you about investors feelings toward risk based on the new ERP?
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Islamic FinanceA Practical Perspective
Authors: Nafis Alam, Lokesh Gupta, Bala Shanmugam
1st Edition
3319665588, 9783319665580
