Problem:
Company A has a beta of 0.70, while Company B's beta is 0.85. The required return on the stock market is 11.00%, and the risk-free rate is 2.25%.
Required:
Question: What is the difference between A's and B's required rates of return? (Hint: First find the market risk premium, and then find the required returns on the stocks.)
- 1.01%
- 0.92%
- 0.87%
- 0.88%
- 0.98%
Note: Explain the solution in detail.