Assume the following historical averages: inflation = 2 percent, U.S. Treasury yields = 4 percent; S&P 500 return = 12 percent. Assume that the current Treasury yield is 2 percent. Which of the following would be an appropriate required return for a capital project with a risk profile equal to the market?

1. 10%
2. 16%
3. 12%
4. 6%