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Old 05-02-2010, 10:56 AM
meggoddess meggoddess is offline
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Join Date: May 2010
Location: Nice, France
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Question Volatility, Correlation, Beta, Cost of Capital

Your company (18%volatility) shows a correlation of 0.9 with the domestic market (15% volatility and 14% return) and a correlation of 0.6 with the world market (18% volatility and 12% return). The correlation of the domestic market with world markets is 0.75. The risk free rate is 5%.

a. Compute the domestic country beta

b. Estimate the cost of capital for your company under capital market
segmentation.
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