Chapter 14

Question 1

Formula for required return

Answer 1

Required return = required risk free real rate of return + E(inflation) + Risk premium

Question 2

Formula for E(Return) and analyse each component for property, equities and bonds

Answer 2

E(Return) = initial income yield + E(capital growth)= Initial income yield + Income growth + Impact of change in yield
Initial income yield = GRY = div yield = rental income/mv
Income growth = div growth = rental income growth = inflation
Impact of change in yield = if yields fall price rises capital gains, vice versa