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%

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%