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Required rate of return

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Data for Oakdale Furniture, Inc. is shown below. Now the expected inflation rate and thus the inflation premium increase by 2.0 percentage points, and Oakdale acquires risky assets that increase its beta by the indicated percentage. What is the firm's new required rate of return?
Beta 1.50
Required Return 10.20%
RPm 6.00%
Percentage increase in beta: 20%

A. 14.00%
B. 14.70%
C. 15.44%
D. 16.21%
E. 17.02%

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Solution Summary

This solution explains how to calculate the required rate of return in the given finance problem.

Solution Preview

We first calculate the risk free rate from the given data
Beta = 1.50, Required ...

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