Suppose that in the coming year, you expect Exxon-Mobil stick to have a volatility of 42% and a beta of 0.9, and Merck's stock to have a volatility of 24% and a beta of 1.1. The risk free interest rate is 4% and the market's expected return is 12%. The cost of capital for a project with the same beta as Merck's stock is closest to:

Suppose that in the coming year, you expect Exxon-Mobil stick to have a volatility of 42% and a beta of 0.9, and Merck's stock to have a volatility of 24% and a beta of 1.1. The risk free interest rate is 4% and the market's expected return is 12%. The cost of capital for a project with the same beta as Merck's stock is closest to:

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Suppose that in the coming year, you expect Exxon-Mobil stick to have a volatility of 42% and a beta of 0.9, and Merck's stock to have a volatility of 24% and a beta of 1.1. The risk free interest rate is 4% and the market's expected return is 12%.
The cost of capital for a project with the same beta as Merck's stock is closest to:



A) 11.2%
B) 12.8%
C) 12.4%
D) 11.6%


Answer: B) E[R] =Rf+Beta× Risk Premium = .04 + 1.1 × (.12 - .04) = .128


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