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Stock A's stock has a beta of 1.30, and its required return is 12.00%. Stock B's beta is 0.80. If the risk-free rate is 4.75%, what is the required rate of return on B's stock

Answer :

Answer:

9.21%

Explanation:

Required return of Stock A = Risk free rate + (Beta of Stock A × Market risk premium )

12.00% = 4.75% + (1.30 × Market risk premium)

=> Market risk premium = 5.58%

Required return of Stock B:

= Risk free rate + (Beta of Stock B × Market risk premium )

= 4.75% + (0.80 × 5.58%)

= 9.21%

Therefore, the required rate of return on B's stock is 9.21%.

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