Company A has a beta of 0.70,while Company B's beta is 1.00.The required return on the stock market is 9.00%,and the risk-free rate is 2.25%.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. )Do not round your intermediate calculations.
A) 2.03%
B) 2.13%
C) 1.66%
D) 1.64%
E) 1.52%

Question

Quizplus · Accepted Answer

The market risk premium is 9.00% - 2.25% = 6.75%. The required return on Company A is 2.25% + 0.70 * 6.75% = 7.28%. The required return on Company B is 2.25% + 1.00 * 6.75% = 9.00%. The difference between A's and B's required rates of return is 9.00% - 7.28% = 1.72%.

Company a Has a Beta of 0