We need to find the expected market return given the expected return on Asset X, the beta of Asset X, and the risk-free rate. We are given: Expected return on Asset X = 20% Beta of Asset X = 1.5 Risk-free rate = 5%

1. Problem Description

We need to find the expected market return given the expected return on Asset X, the beta of Asset X, and the risk-free rate. We are given:

Expected return on Asset X = 20%

Beta of Asset X = 1.5

Risk-free rate = 5%

2. Solution Steps

We can use the Capital Asset Pricing Model (CAPM) to solve for the expected market return.

The CAPM formula is:

$E(R_i) = R_f + \beta_i [E(R_m) - R_f]$

Where:

$E(R_i)$ is the expected return on asset i

$R_f$ is the risk-free rate

$\beta_i$ is the beta of asset i

$E(R_m)$ is the expected market return

We are given $E(R_i) = 0.20$, $R_f = 0.05$, and $\beta_i = 1.5$. We need to solve for $E(R_m)$.

$0.20 = 0.05 + 1.5[E(R_m) - 0.05]$

$0.20 - 0.05 = 1.5[E(R_m) - 0.05]$

$0.15 = 1.5[E(R_m) - 0.05]$

$0.15 / 1.5 = E(R_m) - 0.05$

$0.10 = E(R_m) - 0.05$

$E(R_m) = 0.10 + 0.05$

$E(R_m) = 0.15$

Therefore, the expected market return is 15%.

3. Final Answer

c. 15.0%