Answer (C) is correct . The risk premium on the market is the return on the market portfolio (8.5%) minus the risk-free return as measured by the return on U.S.?Treasury securities (6%), or 2.5%. Answer (A) is incorrect because This figure is the expected return on the stock. Answer (B) is incorrect because This figure is the risk premium on the stock, not the market. Answer (D) is incorrect because The stock’s beta coefficient and the risk premium on the market are not the same in this case.
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