Question

Suppose the​ risk-free return is 6.5 % and the market portfolio has an expected return of 10.3 % and a standard deviation of 16 %. Johnson​ & Johnson Corporation stock has a beta of 0.31. What is its expected​ return?

Answer 1

Answer:

= 7.678%

Explanation:

Data provided

Risk free rate = 6.5%

Beta = 0.31

Marker return rate = 10.3%

Risk free rate = 6.5%

The computation of expected return is shown below:-

Expected return = Risk free rate + Beta × (Marker return rate - Risk free rate)

= 6.5% + 0.31 × (10.3% - 6.5%)

= 6.5% + 0.31 × (3.8%)

= 6.5% + 1.178%

= 7.678%