Use the following information to answer the question(s)below.
-If the risk-free rate is 5% and the expected return of investing in Merck is 11.3%,then the expected return on the market must be:
A)8.0%.
B)10.0%.
C)10.4%.
D)12.0%.

Question

Use the following information to answer the question(s)below. 
-If the risk-free rate is 5% and the expected return of investing in Merck is 11.3%,then the expected return on the market must be:
A)8.0%. 
B)10.0%. 
C)10.4%. 
D)12.0%.

Quizplus · Accepted Answer

The expected return on the market can be calculated using the Capital Asset Pricing Model (CAPM): Expected return = Risk-free rate + Beta * (Market return - Risk-free rate). Assuming Merck's beta is 1 (since it's not provided), the market return must be 12% to achieve an expected return of 11.3% for Merck.

Use the Following Information to Answer the Question(s)below