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?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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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?

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