Answer: 6.0%.

**Explanation:** According to the Capital Asset Pricing Model (CAPM), the expected return of a security is calculated as: \[ E(R_i) = R_f + \beta_i (E(R_m) - R_f) \] Where: - \(E(R_i)\) is the expected return of the security (11%). - \(R_f\) is the risk-free rate (2%). - \(\beta_i\) is the beta of the security (1.5). - \(E(R_m) - R_f\) is the market risk premium. Rearranging the formula to solve for the market risk premium: \[ E(R_m) - R_f = \frac{E(R_i) - R_f}{\beta_i} = \frac{0.11 - 0.02}{1.5} = 0.06 = 6\% \] Thus, the market risk premium is **6%**, making option **B** the correct answer. **Why not A or C?** - **Option A (4.0%)** is incorrect because it miscalculates the market risk premium by subtracting the risk-free rate again after solving for \(E(R_m) - R_f\). - **Option C (7.3%)** is incorrect because it uses an erroneous CAPM equation, leading to an inflated market risk premium.

Author: LeetQuiz Editorial Team