You have been employed as an equity analyst and have been asked to estimate the required rate of return on a small stock for an equity valuation task. You have estimated that the risk-free rate is 4% p.a. and the expected return on the market portfolio is 11% p.a. The stock you are evaluating has a market beta of 1.4. The appropriate annual expected rate of return of this stock should be...

Select one: a. 13.8% p.a. if you believe that the Fama and French three-factor model holds. b. 15% if you believe that the Capital Asset Pricing Model (CAPM) holds. c. greater than 13.8% if you believe that the Fama and French three-factor model holds. d. greater than 15% if you believe that the Capital Asset Pricing Model (CAPM) holds. e. None of the options provided.