Suppose that you have access to two funds. Fund $1$ has a CAPM beta of $0\mathrm{.}4,$ Fund $2$ has a CAPM beta of $1\mathrm{.}9.$ Fund $1$ has an average return of $8\mathrm{.}5\%$ and Fund $2$ has an average return of $10\mathrm{.}5\%.$ The riskless rate is $5\%$ and the market risk premium is $7\%.$ You would like to construct a Betting$-$against$-$Beta $($BaB$)$ strategy by levering up Fund $1$ and delevering Fund $2$ so that both have a beta of $1\mathrm{.}75.$ Assume that you can borrow and lend at the riskless rate.

What is the expected return on the zero$-$cost strategy long in levered Fund $1$ and short in delevered Fund $2?$

A$.$

$4\mathrm{.}39\%$

B$.$

$8\mathrm{.}00\%$

C$.$

$10\mathrm{.}25\%$

D$.$

$2\mathrm{.}93\%$