STOCKS & BONDS
posted by Yinka .
The real risk-free rate of return has been estimated to be 2 percent under current economic conditions. The 30-day risk-free rate (annualized) is 5 percent. Twenty-year U.S. government bonds currently yield 8 percent. The yield on 20 year bonds issued by the Forester Company is 14 percent. Investors require an 18 percent return on Forester's common stock. The common stock of Brown's Forensic Products has a required return of 20 percent. Compute and identify all meaningful risk premiums. What might account for the difference in the required returns for Brown versus Forester?