Stock A has a required return of 19 percent. Stock B has a required return of 11 percent. Assume a risk-free rate of 4.75 percent. By how much does Stock A's risk premium exceed the risk premium of Stock B?
A) 3.25 percent
B) 6.25 percent
C) 8.00 percent
D) 7.00 percent

Question

Quizplus · Accepted Answer

The risk premium is calculated as the required return minus the risk-free rate. For Stock A, it is 19% - 4.75% = 14.25%. For Stock B, it is 11% - 4.75% = 6.25%. The difference is 14.25% - 6.25% = 8.00%.

Stock a Has a Required Return of 19 Percent