16. Option C) 6.5%
Explanation:
We need to use the following formula:
Kc = Rf + beta * ( Km - Rf )
In which,
Kc = Risk-adjusted discount rate
Rf = Risk-free rate
Km = Market return
Putting the values, we get:
Kc = 4 + 0.5 * ( 9 - 4 )
or, Kc = 4 + 0.5 * 5
or, Kc = 4 + 2.5
or, Kc = 6.5%
So, the risk-adjusted discount rate is 6.5%.
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