Question

What is the expected return on a risky investment where the risk free rate is 5.1%; the investment's beta is 1.4; the equity market risk premium is 5.0%; and the cost of debt is 4.5%.

Answer 1

Explanation:

It rises, flattens, then turns negative. The slope of this total utility curve is marginal utility. The shape of the total utility curve means that marginal utility is high for small quantities, declines, then becomes negative as the quantity consumed increases

Answer 2

Answer:

To calculate the real risk-free rate, subtract the current inflation rate from the yield of the Treasury bond that matches your investment duration. If, for example, the 10-year Treasury bond yields 2%, investors would consider 2% to be the risk-free rate of return.