The risk-free rate and the expected market rate of return are 6% and 16%, respectively. According to the capital asset pricing model, the expected rate of return on security X with a beta of 1.2 is equal to ________.

A) 12%
B) 17%
C) 18%
D) 23%

Expected Rate

The anticipated return on an investment under normal circumstances, often estimated based on historical data and analysis.

Capital Asset Pricing Model

A framework that explains the connection between inherent risk and anticipated return on investments, especially in the context of equities.

Beta

A measure of a stock's volatility in relation to the overall market, indicating how much the stock price is expected to fluctuate.