If were given a question to calculate stocks expected return (ex, beta=2, rfr=5%, mkt premium=10%) and they give us an inflation premium as well, would we add that to the Risk Free Rate?
we ignore inflation premium since all of those rates are nominal.
Unless question say the RFR is real, if not, ignore the inflation distractor.
That is correct manowar. By default, the given RFR is a Nominal rate. That is, it already includes effect of Inflation Premium in it. If a question says, REAL RFR is 2% and Inflation Premium is 3%, then the RFR for your CAPM calculation will be 2% + 3% = 5%. So, unless question says RFR is REAL, ignore any given Inflation Premium.