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1) Calculate the required rate of return for Best Inc., assuming that (1) investors expect a

2% rate of inflation in the future, (2) the real risk-free rate is 2%, (3) the market risk premium

is 5.0%, (4) the firm has a beta of 2, and (5) its realized rate of return has averaged 10.0%

over the last 5 years.

2) Calculate the required rate of return for Hope Inc., assuming that (1) investors expect a

2% rate of inflation in the future, (2) the real risk-free rate is 2.0%, (3) the market return on

S&P 500 Index is 10%, (4) the firm has a beta of 2, and (5) its realized rate of return has

averaged 10.0% over the last 5 years.

3) Chance Inc's stock has an expected return of 12%, a beta of 1.7, and is in

equilibrium. Assume the nominal risk-free rate is 4.00%.

1. What is the equity risk premium?
2. what is the market risk premium?