Reference no: EM132546156

The real rate of return has been estimated to be 3 percent given current economic conditions. The 30-day risk-free rate (annualized) is 4 percent. Twenty-year U.S. government bonds currently yield 8 percent. The yield on 20-year bonds issued by the Forester Hoop Company is 10 percent. Investors require a 17 percent return on Forester's common stock. The common stock of Brown's Forensic Products has a required return of 12 percent.

Compute and identify all meaningful risk premiums. Round your answers to the nearest whole number.

Inflation premium: %

Maturity risk: %

Default risk premium (Forester): %

Seniority risk premium (Forester common stock): %

What might account for the difference in the required returns for Brown versus Forester?

Investors may require a higher or lower? rate of return on Brown's common stock compared to Forester's because Brown may have -greater or lower? business and/or financial risk than Forrester.