1. Business
2. Finance
3. Capital Budgeting
4. Beta and Required Return of a Project
5. 10450

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Company Alpha has a beta of 1.6, while Company Omega's beta is 0.7. The risk-free rate is 7%, and the required rate of return on the average stock is 12%. Now the expected rate of inflation built into krf rises by one percentage point, the real risk-free rate remains constant, the required rate on the market increases to 14%, and betas remain constant. After all of these changes have been reflected in the data, calculate by how much the required rate of return on Stock Alpha will exceed that on Stock Omega.
a. 3.75%

b. 4.20%

c. 4.82%

d. 5.40%

e. 5.75%