Calculate the Required Rate of Return for Mercury Inc

Calculate the required rate of return for Mercury Inc., assuming that investors expect a 5 percent rate of inflation in the future. The real risk-free rate is equal to 3 percent and the market risk premium is 5 percent. Mercury has a beta of 2.0, and its realized rate of return has averaged 15 percent over the last 5 years.

A) 15%
B) 16%
C) 17%
D) 18%
E) 20%

Correct Answer:

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