4. Given a real rate of interest of 3.2%, an expected inflation premium of 5.1%, and risk premiums for investments A and B of7.4% and 8.9% respectively, find the following:a. The risk-free rate of return, r;b. The required returns for investments A and BReview OnlyClick the icon to see the Worked Solution.a. The risk-free rate of return is%. (Round to one decimal place.)b. The required return for investment A is%. (Round to one decimal place.)The required return for investment B is%. (Round to one decimal place.)

Answer a. The risk-free rate is the rate that accounts for inflation. Since the real rate of…

Click the icon to see the Worked Solution. a. The risk-free rate of return is %. (Round to one decimal place.) b. The required return for investment A is %. (Round to one decimal place.) The required return for investment B is %. (Round to one decimal place.)

Click the icon to see the Worked Solution. a. The risk-free rate of return is %. (Round to one decimal place.) b. The required return for investment A is %. (Round to one decimal place.) The required return for investment B is %. (Round to one decimal place.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

4. Given a real rate of interest of 3.2%, an expected inflation premium of 5.1%, and risk premiums for investments A and B of
7.4% and 8.9% respectively, find the following:
a. The risk-free rate of return, r;
b. The required returns for investments A and B
Review Only
Click the icon to see the Worked Solution.
a. The risk-free rate of return is
%. (Round to one decimal place.)
b. The required return for investment A is
%. (Round to one decimal place.)
The required return for investment B is
%. (Round to one decimal place.)

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