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29 August, 02:35

If the expected return on the market is 11% and the expected return of investing in Merck is 10.35%, then the riskminus-free rate must be: A. 5.0% B. 4.0% C. 3.0% D. 4.5%

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  1. 29 August, 03:24
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    The answer is given below;

    Explanation:

    Ra=Rf + (Rm-Rf) * Ba

    Rm=11%

    Ra=10.35%

    Ba=.9 it is assumed that beta is. 9 for merck

    Rf=?

    By putting values in above formula we get

    10.35%=Rf + (11%-Rf) *.9

    10.35%=Rf+.9*11%-.9Rf

    10.35%=.1Rf+.099

    .1Rf=10.35%-9.9%

    Rf=.45%/.1

    Rf=4.5%
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