A.) The markets in general are paying a 1% real rate of return. Inflation is expected to be 3%. RJH stock commands an 8% risk premium. What is the expected rate of return on RJH stock?

Explain your answer in terms of systematic and idiosyncratic risks, and the relationship between expected (required) market returns and inflation risk.

b) The required rate of return on the RJH common stock is 10%, holding all other assumptions as in (a), what is the risk premium associated with RJH stock? Explain your answer.