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# The Capital Asset Pricing Model: Merck & Co.

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Using the PC Quote Web Page find the beta for Merck & Co. Inc. 2 page, double space.

a. What is Merck's estimated beta coefficient?

b. Use the CAPM equation in order to find out what is the present 'cost of equity' of Merck? Explain the meaning of the 'cost of equity'.

c. Choose two other companies. If you invest 1/3 of your money in each of these companies' stocks, what would the beta of the portfolio be? What would be the expected rate of return?

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#### Solution Preview

Capital Asset Pricing Model: Merck & Co.

According to Yahoo! Finance (2010), the beta of Merck and Company, Inc. (NYSE: MRK) is 1.00. This means that if ever I decide to include Merck's common share in to my portfolio, three scenarios can result:

1. if there is only one asset in my portfolio, which is Merck's stocks, then the [portfolio's overall beta would also be 1.00
2. if there are other assets in the portfolio and that the portfolio beta is above 1.00 before the addition of Merck, then the new portfolio beta will now be closer to 1.00 and less than the original figure
3. if there are other assets in the portfolio and that the portfolio beta is less than 1.00 before the addition of Merck, ...

#### Solution Summary

This solution discusses CAPM and Merck & Co. in 398 words with three references.

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