Assume the Real Rate of Return in the Economy Is

question 23

Essay

Assume the real rate of return in the economy is 4.25 percent,the expected rate of inflation is 3.5 percent and the risk premium is 6.75 percent.Compute the risk free rate and required rate of return.

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Definitions:

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Average Total Cost

The total cost of production divided by the total quantity of output, representing the cost per unit of output.

Scale of Operations

The scope or size of production, or the level at which a business operates in terms of output.

Average Cost Curve

A graphical representation that shows how the cost per unit of production varies with the quantity produced.