Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 5.0% rate of inflation in the future. The real risk-free rate is 1.5%, and the market risk premium is 5.0%. Mudd has a beta of 1.5, and its realized rate of return has averaged 13.5% over the past 5 years. Round your answer to two decimal places.

r of Mudd = 14.00%

Explanation:

The required rate of return for Mudd Enterprises can be calculated using the CAPM equation. The equation is as follows,

r = rRF + Beta  *  rpM

Where,

rRF is the risk free raterpM is the market risk premium

We know the beta for Mudd and we also know the market risk premium. We will need to calculate the risk free rate.

Risk free rate =  Real risk free rate  +  expected inflation rate

Risk free rate = 1.5%  +  5%

Risk free rate = 6.5%

r of Mudd = 6.5%  +  1.5  *  5%

r of Mudd = 14.00%

Secured loans are protected by collateral security. examples: title loans where the borrower uses the car title as collateral security interest rates are lower and repayments are longer therefore risk is low as a collateral security is given as guarantee to the bank in case of failure to pay the loanunsecured loans are not protected by collateral security but it is given on the creditworthiness of the borrower, trusting that she/he will pay on time. examples; payday loans is a short term loan where the borrower lends money from the bank and pays is back when the borrower receives his/her wages.interest rates are high and repayments are shorter. but the risk is high as no collateral security is given as a guarantee to the bank for payment of the loan

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