On this one I follow until we have to find new Rpm.... How is it 3? Thank you in advance

DHF Company has a beta of 1.5 and is currently in equilibrium. The required rate of return on the stock is 12.00% versus a required return on an average stock of 10.00%. Now the required return on an average stock increases by 30.0% (not percentage points). Neither betas nor the risk-free rate change. What would DHF's new required return be?

Selected Answer:	[None Given]
Answers:	a. 17.33%
b. 14.89%
c. 15.68%
d. 16.50%
e. 18.19%

Response Feedback:

Rationale: This problem requires some algebra:

CCC's beta	1.50
CCC's initial required return	12.00%
Percentage increase in required market return	30.0%
Initial required return on the market	10.00%
New required return on the market	13.00%
Now for the algebra:
rStock= rRF+ b(RPM) = rRF+ 1.5(RPM)
rMarket= rRF+ b(RPM) = rRF+ 1.0(RPM)
Now insert known data and transpose:
12% = rRF+ 1.5(RPM) >> 12%rRF= 1.5(RPM)
10% = rRF+ (RPM) >> 10%rRF= 1.0(RPM)

Now subtract the second equation from the first. r_RFand one of the RP_Ms cancel, leaving: 2% = 0.5(RP_M)

Now solve for RPM: RPM= 2%/0.5	4.00%
Now find the risk-free rate: rRF= Initial rMarketRPM= 10%4% =	6.00%
New RPM= New required return on the marketrRF	7.00%
Now find the new return on CCC = rRF+ b(new RPM) =	16.50%