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?

= 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%