Consider the following information for Stocks A$,$ B$,$ and C$.$ The returns on the three stocks, while positively correlated, are not perfectly

correlated.

The risk$-$free rate is $5\mathrm{.}50\%.$

Let $r_i$ be the expected return of stock $i,r_{RF}$ represent the risk$-$free rate, $b$ represent the Beta of a stock, and $r_M$ represent the market return.

Assume that the market is in equilibrium, with the required rate of returns equal to expected returns.

According to the video, which equation most closely describes the relationship between required returns, beta, and the market risk premium?

$r_i=r_{RF}+b(r_M-r_{RF})$

$r_i=r_{RF}-b(r_M-r_{RF})$

$r_i=r_{RF}+b(r_M+r_{RF})$

$r_i=r_{RF}+\frac{b}{r_M-r_{RF}}$