Answer:
9.21%
Explanation:
Required return of Stock A = Risk free rate + (Beta of Stock A x Market risk premium)
12.00% = 4.75% + (1.30 x Market risk premium)
=> Market risk premium = 5.58%
Required return of Stock B:
= Risk free rate + (Beta of Stock B x Market risk
premium)
= 4.75% + (0.80 x 5.58%)
= 9.21%
Therefore, the required rate of return on B's stock is 9.21%.
