Suppose the risk-free return is 2% and the market portfolio has an expected return of 12% and a volatility of 16%. Merck & Co. (Ticker: MRK) stock has a 25% volatility and a correlation with the market of 0.8. What is Merck’s beta with respect to the market?

Financial Management: Theory & Practice
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ISBN:9781337909730
Author:Brigham
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Chapter6: Risk And Return
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Problem 14P: You have observed the following returns over time: Assume that the risk-free rate is 6% and the...
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Suppose the risk-free return is 2% and the market portfolio has an expected return of 12% and a volatility of 16%. Merck & Co. (Ticker: MRK) stock has a 25% volatility and a correlation with the market of 0.8.

  1. What is Merck’s beta with respect to the market?
  2. Under the CAPM assumptions, what is its expected return?
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