A. 5% is the risk premium for the market as a whole, which is RM - RF, or (.09 - .04). It is not the risk premium for a security with a beta of .5.
B. The risk premium for an individual security is its beta times the difference between the return to the market and the risk-free rate. Thus, the security’s risk premium is .5(.09 - .04), which is .025 or 2.5%.
C. 50% is the percentage equivalent of the security's beta, which is .5. The security's beta is not the risk premium for the security.
D. 6.5% is the average of 4% and 9%. It is not the risk premium for a security with a beta of .5.
