Shady Dealings Co. has a beta of 0.7 and a required rate of return of 15%. The market risk premium is currently 5%. If we expect the inflation premium to increase by 2% and Shady Dealings to acquire assets which will increase its beta to 1.05, what will be Shady Dealings' new required rate of return?
First, find the risk free rate
Let Er = return on assets
Rf = risk free rate
Rm = market return
B = beta
Er = Rf + B (Rm - Rf) * we are ...
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