Calculate the required rate of return for Mercury Inc.,assuming that the real risk-free rate is equal to 4% and the market risk premium (note that is not the same as the market return)is 6%.Mercury has a beta of 1.5,and its realized rate of return has averaged 15% over the last 5 years.
A) 6%
B) 16%
C) 18%
D) 13%
E) 17%

Question

Quizplus · Accepted Answer

E(k_i) = k_F + β_i[E(k_M) - k_F] E(k_i) = 0.04 + 1.50 [0.06] E(k_i) = 0.13 or 13%

Calculate the Required Rate of Return for Mercury Inc