Problem:
CCC Corp has a beta of 1.5 and is currently in equilibrium. The required rate of return on the stock is 12.00% versus a required return on an average stock of 10.00%. Now the required return on an average stock increases by 50.0% (not percentage points). Neither betas nor the risk-free rate change.
Required:
Question: What would CCC's new required return be?
A) 21.84%
B) 22.43%
C) 21.65%
D) 19.50%
E) 16.97%
Note: Provide support for your underlying principle.