The risk-free rate is 10 percent and the expected return on, Financial Management

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The risk-free rate is 10 percent and the expected return on

The risk-free rate is 10 percent and the expected return on the market portfolio is 16 percent. The ABC firm's stock has a beta of 1.8, and your estimate that the return on the ABC firm would be 18 percent (expected rate of return). As a rational investor, you would

A. not buy the stock because the return does not adequately compensate for the risk.

B. not buy the stock because it would greatly increase the risk of your portfolio, which currently has a beta of 1.2.

C. buy the stock because 18 percent is high enough return.

D. buy the stock because you like taking the risk.

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