An Investor Was Expecting an 18% Return on His Portfolio

An investor was expecting an 18% return on his portfolio with Beta of 1.25 before the market risk premium increased from 8% to 10%.Based on this change, what return will now be expected on the portfolio?

A) 20.0%
B) 20.5%
C) 22.5%
D) 26.0% Old: 18% = rf + 1.25(8%)
= r_f + 10.0%
8) 0% = r_f
New: Expected return = 8.0% + 1.25(10%)
= 8) 0% + 12.5%