1. Calculate the required rate of return for Best Inc., assuming that (1) investors expect a 2% rate of inflation in the future, (2) the real risk-free rate is 3.0%, (3) the market risk premium is 4.0%, (4) the firm has a beta of 1.1, and (5) its realized rate of return has averaged 10.0% over the last 5 years.
2. Calculate the required rate of return for Hope Inc., assuming that (1) investors expect a 2.0% rate of inflation in the future, (2) the real risk-free rate is 3.5%, (3) the market return on S&P 500 Index is 8.5%, (4) the firm has a beta of 1.5, and (5) its realized rate of return has averaged 10.0% over the last 5 years.