All of the following factors affect the required rate of return EXCEPT
A) the economy's risk-free rate.
B) corporate business risk.
C) return on equity.
D) country risk.
E) expected rate of inflation.

Question

Quizplus · Accepted Answer

The return on equity (ROE) is a measure of the profitability of a company and does not directly affect the required rate of return. However, it may indirectly affect the required rate of return if investors perceive the company as having high or low business risk based on its ROE. The other factors listed (economy's risk-free rate, corporate business risk, country risk, and expected rate of inflation) are all directly related to the required rate of return.

All of the Following Factors Affect the Required Rate of Return