Stock A's stock has a beta of 1.20, and its required return is 12.25%. Stock B's beta is 0.80. If the risk-free rate is 4.25%, what is the required rate of return on B's stock?
8.76%
9.21%
10.25%
9.58%
8.12%
Required rate=risk free rate+Beta*market risk premium
A:
12.25=4.25+1.2*market risk premium
market risk premium=(12.25-4.25)/1.2
=6.67%(Approx).
B:
Required rate=4.25+(0.8*6.67)
=9.58%(Approx).
Stock A's stock has a beta of 1.20, and its required return is 12.25%. Stock B's...