Can anyone clarify what "required risk free real rate of return" means in the definition of required return? I thought there is only one definition of risk free rate, not a "required" risk free rate - or is this referring to LIBOR net of inflation vs. real risk free on ILG's?
In the definition of required return, "required risk-free real rate of return" will normally just mean the real yield on an index-linked government bond of the appropriate term (as suggested on page 4 of Chapter 17). So, the inclusion of the word "required" isn't strictly necessary here, as the Core Reading could equally just call this the "risk-free real rate of return" - without including the word required. However, it is "required" in the sense that no investor would want to receive any less than the real risk-free rate on index-linked government bonds, for example by investing in non-risk-free (corporate) index-linked bonds.
