Choice "C" is correct. The CAPM holds that:
| C | = | R + ß(M − R) |
Where | C | = | Cost of capital |
| R | = | Risk free rate |
| ß | = | Beta |
| M | = | Market rate of return |
Substituting
C | = | 6% + 1.25 (14% − 6%) |
| = | 6% + 10% |
| = | 16% (Choice "C") |
Choices "d", "b", and "a" are incorrect, per the above calculation.
