123k views
2 votes
If the risk-free rate is 3.80 percent and the risk premium is 2.8 percent, what is the required return

1 Answer

4 votes

Answer: 6.6%

Explanation:

The expected rate of return is simply the risk free rate + the risk premium. So, 3.8% + 2.8% = 6.6%.

- The risk free rate is the return an investor would receive without any risk.
- The risk premium is the return an investor would receive over and above the risk free rate.

- Conceptually, if we rearrange this formula, if an investor require a rate of return of 6.6%, then the risk premium is simply the excess rate over the risk free rate. So, 6.6% - 3.8% = 2.8%. Here we can check that our work is correct.

User Shalki
by
7.1k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.