A. To solve this problem, we simply need to put the variables into the CAPM formula, which is
R = RF + β(RM - RF)
Substituting the values given into the formula gives a 16% rate of return: 6% + [1.25 × (14% - 6%)] = 16%
B. This answer is incorrect. See the correct answer for a complete explanation.
C. This answer is incorrect. See the correct answer for a complete explanation.
D. This answer is incorrect. See the correct answer for a complete explanation.
