Suppose the Domestic U $$\beta _ { \mathrm { IBM } } ^ { \mathrm { U } . \mathrm { S } } = 1.0$$

question 98

Multiple Choice

Suppose the domestic U.S.beta of IBM is 1.0,that is $$\beta _ { \mathrm { IBM } } ^ { \mathrm { U } . \mathrm { S } } = 1.0$$ ,and that the expected return on the U.S.market portfolio is $\bar { R } _ { \text {U.S. } } = 12$ percent,and that the U.S.T-bill rate is 6 percent.If the world beta measure of IBM is $\beta _ { \mathrm { IBM } } ^ { \text {world } } = 0.80$ then we can say

• A)That if the U.S.markets are fully integrated with the rest of the world, IBM's cost of equity capital would be 20% lower than if U.S.markets were segmented.
• B)That if the U.S.markets are fully integrated with the rest of the world, IBM's cost of equity capital would be 10% lower than if U.S.markets were segmented.
• C)That if the U.S.markets are fully integrated with the rest of the world, IBM's cost of equity capital would be one-third lower than if U.S.markets were segmented.
• D)None of the above

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