Answer: 0.30.

## Explanation Using the Capital Asset Pricing Model (CAPM) formula: \[ E(R_i) = R_f + \beta_i[E(R_m) - R_f] \] Where: - \(E(R_i)\) = Expected return on security = 7% - \(R_f\) = Risk-free rate = 4% - \(E(R_m)\) = Expected return on market = 14% - \(\beta_i\) = Beta of the security (what we need to find) Rearranging the formula to solve for beta: \[ \beta_i = \frac{E(R_i) - R_f}{E(R_m) - R_f} \] Plugging in the values: \[ \beta_i = \frac{7\% - 4\%}{14\% - 4\%} = \frac{3\%}{10\%} = 0.30 \] Therefore, the security's beta is 0.30, which corresponds to option B. **Verification:** - Expected return = Risk-free rate + Beta × Market risk premium - 4% + 0.30 × (14% - 4%) = 4% + 0.30 × 10% = 4% + 3% = 7% ✓

Author: LeetQuiz .