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Answer:
The difference between the riskier and less riskier stock is 13.2 percent.
Explanation:
Given that the stock R has the Beta = 2.5
The stock S has the beta = 0.85
The required return on the average stock = 12%
Given risk free rate of return = 4%
Now calculate the required return by using the below formula:
Ke = Rf + B (Rm - Rf)
Rf = risk free rate of return
B = beta
Rm = market rate of return
Required return on riskier stock =
Required return on less risky stock =
Now the difference between the both risk = 24 % - 10.8% = 13.2%