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How does beta affect a companies required rate of return?

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Company A has a beta of 0.70, while Company B's beta is 1.30. 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.)
4.74%
4.05%
3.77%
4.94%
4.70%

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Solution Summary

The solution explains how to calculate the difference in the required rate of return for two stocks.

Solution Preview

We use the CAPM equation to calculate the return on the two stocks and then ...

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