1. Calculate the required rate of return for a specific investment with an investment horizon of 5 years, provided with the below data:
|
Risk type
|
Sensitivity (βi)
|
Risk rate
|
|
interest change risk
|
0.25
|
3.00%
|
|
business cycle risk
|
1.9
|
4.90%
|
|
inflation risk
|
0.8
|
1.70%
|
2. Explain the three type of risks mentioned for this specific investment.