Company A has a beta of 0.70, while Company B's beta is 1.20. The required return on the stock market is 11.00%, and the risk-free rate is 4.25%. What is the difference between A's and B's required rates of return? (Hint: First find the market risk premium, then find the required returns on the stocks.)
Answer
A. 2.75%
B. 2.89%
C. 3.05%
D. 3.21%
E. 3.38%