Stock X Has a Beta of

Multiple Choice

Stock X has a beta of .87 and an expected return of 9.8 percent. Stock Y has a beta of 1.2 and an expected return of 13.1 percent. What is the risk-free rate of return assuming that both stock X and stock Y are correctly priced?

A) 1.10 percent
B) 1.20 percent
C) 2.07 percent
D) 3.30 percent
E) 3.50 percent