Mikkelson Corporation's stock had a required return of 12.50% last year, when the risk-free rate was 3% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free rate and the firm's beta remain unchanged. What is the company's new required rate of return? (Hint: First calculate the beta, then find the required return.) Do not round your intermediate calculations.
A. 12.87%
B. 16.50%
C. 13.04%
D. 12.71%
E. 14.36%
Answer: B
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