Suppose the Domestic U

question 60

Multiple Choice

Suppose the domestic U.S. beta of IBM is 1.0, that is and that the expected return on the U.S. market portfolio is percent, and that the U.S. T-bill rate is 6 percent. If the world beta measure of IBM is 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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Definitions:

Representativeness Heuristics

A mental shortcut used to judge the probability of an event by its similarity to a prototype or stereotype.

System II

refers to the deliberative, analytical and slower thinking process in dual-process theories of cognition.

Induction

A reasoning process that involves making generalizations based on specific observations or instances.

Deduction

A logical process in which a conclusion follows necessarily from the stated premises, implying the truth of the conclusion if the premises are true.