Answer:
Security D
Explanation:
Fair rate of Return  = 
where B  = Beta, which is the degree of responsiveness of security return to market return
 = Risk Free Rate of return
 = Risk Free Rate of return 
 = Return on market portfolio
 = Return on market portfolio
 Risk premium which is, 10 - 4 = 6 %
 Risk premium which is, 10 - 4 = 6 %
Thus, for security A = 4 + 0.85 × 6 = 9.1%
          for security B = 4 + 0.75 × 6=  8.5%
          for security C = 4 + 1.2 × 6 = 11.2%
          for security D = 4 + 1.35 × 6 = 12.1%
          for security E = 4 + 0.5 × 6 = 7%
Expected returns as given  
      for A = 7%
      for B = 9%
      for C = 9.5%
      for D = 12.1%
      for E = 14%
As is evident, the fair and expected return for stock D is the same i.e 12.1%. Hence, the investor would be indifferent in that case whether to buy, sell or hold such a stock.