The correct answer is B. 13.20%.
The cost of common stock is the rate of return that shareholders require for investing in the company. It is calculated by adding the risk premium to the risk-free rate of return. The risk premium is the additional return that investors demand for taking on additional risk. The risk-free rate of return is the return that investors can expect to earn on a risk-free investment, such as a government bond.
In this case, the bond risk premium is 3% and the bond yield is 10.2%. Therefore, the cost of common stock is 10.2% + 3% = 13.2%.
Option A is incorrect because it is the risk-free rate of return. Option C is incorrect because it is the bond yield. Option D is incorrect because it is much higher than the cost of common stock.