An average stock has a required return of 12 percent, and the market risk prémium is 4 percent. If Johnson's expected rate of return is 8 percent, what is the difference between Johnson's expected and required rates of return?
An average stock has a required return of 12 percent, and the market risk prémium is 4 percent. If Johnson's expected rate of return is 8 percent, what is the difference between Johnson's expected and required rates of return?
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 11P
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Question
![B PROBLEM 4
The realized returns for the market and Johnson Drugs for the last four years are given below:
Year
1
2
3
4
Market
10%
15%
-5%
0%
Johnson
5%
0%
14%
10%
1
2 An average stock has a required return of 12 percent, and the market risk prémium is 4 percent.
3 If Johnson's expected rate of return is 8 percent, what is the difference between Johnson's
4 expected and required rates of return?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8f11f5bf-9331-4256-99ed-e2c0db53b3c0%2F079b7ac9-d669-4559-bf19-bd1601def417%2Fm7fnxpu_processed.jpeg&w=3840&q=75)
Transcribed Image Text:B PROBLEM 4
The realized returns for the market and Johnson Drugs for the last four years are given below:
Year
1
2
3
4
Market
10%
15%
-5%
0%
Johnson
5%
0%
14%
10%
1
2 An average stock has a required return of 12 percent, and the market risk prémium is 4 percent.
3 If Johnson's expected rate of return is 8 percent, what is the difference between Johnson's
4 expected and required rates of return?
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