Given the following information, ra = 14.7%; rrf = 5.25%; rm = 12%, calculate the beta coefficient for Stock A that would be consistent with equilibrium. Explain why this represents equilibrium.

ra = rrf + beta (rm - rrf)

14.7 = 5.25 + beta (12 - 5.25)

14.7 - 5.25 = beta (6.75)

9.45 = beta (6.75)

beta = 1.4