The markets in general are paying a 2% real rate of return. Inflation is expected to be 3%. ABC share commands a 6% risk premium. What is the expected rate of return on ABC share?
A) 11%.
B) 5%.
C) 8%.
D) 2%.

Question

Quizplus · Accepted Answer

The expected rate of return on ABC share is calculated by adding the real rate of return, the expected inflation rate, and the risk premium: 2% + 3% + 6% = 11%.

The Markets in General Are Paying a 2% Real Rate