Cost of common stock is 15% and bond yield is 10.5% then bond risk premium will be

1.43%
8.50%
25.50%
4.50%

The correct answer is B. 8.50%.

The bond risk premium is the additional return that investors demand for holding a risky bond over a risk-free bond. It is calculated as the difference between the yield on a risky bond and the yield on a risk-free bond. In this case, the yield on the risky bond is 15% and the yield on the risk-free bond is 10.5%, so the bond risk premium is 8.50%.

Option A is incorrect because it is the difference between the cost of common stock and the yield on the risk-free bond. Option C is incorrect because it is the cost of common stock plus the bond risk premium. Option D is incorrect because it is the yield on the risky bond.

The bond risk premium is important because it tells investors how much extra return they can expect to earn by investing in a risky bond over a risk-free bond. The higher the bond risk premium, the more risky the bond is considered to be.

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