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Required rate of return

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Kamath Manufacturing Company has a beta of 1.45, while Gehr Industries has a beta of 0.85. The required return on the stock market is 12.00%, and the risk-free rate is 5.00%. What is the difference between Kamath's and Gehr's required rates of return? (Hint: First, find the market risk premium, then find required returns on the stocks.)

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This solution is comprised of a detailed explanation to answer what is the difference between Kamath's and Gehr's required rates of return.

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We can find the required return on the stock by using the following formula.

rs = rf + (rm - rf)b where rs is the stock's required rate of return
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