Your required answer is option A i.e. 10.74%
Use the formula given under CAPM method
ERi=Rf+βi(ERm−Rf)
where:
ERi=expected return of investment
Rf=risk-free rate
βi=beta of the investment
(ERm−Rf)=market risk premium
=2.3%+.87(12%-2.3%)
= 10.74%
I hope this clear your doubt.
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