Bus 405 problems | Business & Finance homework help
The required return for Abbott Laboratories is 11.9%, which is calculated by multiplying the current risk free rate (4%), inflation premium (4%), and required market risk premium (3.9%). The risk-free rate reflects the amount that an investor would require from an investment with no inherent risk due to default, while the inflation premium accounts for any changes in prices over time and must also be taken into consideration when making investments decisions. Lastly, the required market risk premium reflects the expected return of a stock relative to that of a broad market index such as S&P 500 and provides insight into potential returns associated with investing in individual stocks versus other types of investments.
Overall, understanding both sustainable growth rates as well as required returns are important factors when evaluating potential investments in companies such as Abbott Laboratories. By having knowledge about both these metrics investors are able to make informed decisions regarding where they allocate their resources while still achieving their desired outcomes over time.