A. The stock's beta and the risk-free rate are irrelevant information. The only information needed to calculate the rate of return on this stock are the annual dividend and the market value of the stock. Because the amount of the dividend is not expected to change, this is a perpetual annuity. The return is calculated as the annual dividend divided by the market value of the investment, or .30 ÷ $2.50, which is 12%.

B. This answer is not correct. See correct answer for an explanation.

C. This answer results from using the Capital Asset Pricing Model and using the rate of return on the investment as the return on the market. The Capital Asset Pricing Model is not needed to calculate the rate of return on this investment.

D.This answer is not correct. See correct answer for an explanation.