The nominal required rate is determined by the inflation premium, the risk premium, and the:
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A. B. C. D.B
The equation for the nominal risk free rate is:
RequiredReturnnominal= [(1 + Risk-FreeRatereal) * (1 + Inflation Premium) * (1 + Risk Premium)] - 1
The market risk premium is used when determining the security market line (SML) and equals the required market return minus the nominal risk-free rate. Liquidity risk is a part of total risk which is measured by the risk premium. The exchange rate is not a factor in this calculation.