1. The risk-free rate is equal to 3 percent and the expected market return is 8 percent. Pluto has a beta of 1.20 and inflation has averaged 1 percent over the last 5 years. Using the CAPM, what is the required rate of return for Pluto Corp?
a. 10% b. 9%
c. 8% d. 7%
2. The risk-free rate is equal to 3 percent and the market risk premium is 8 percent. Saturn has a beta of 0.75 and inflation has averaged 1 percent over the last 5 years. Using the CAPM, what is the required rate of return for Saturn Corp?
a. 6.75% b. 7.75%
c. 9.00% d. 10.00%