The systematic risk (beta) of Grand Pet is 0.8 when measured against the Morgan Stanley Capital International (MSCI) world market index and 1.2 against the London Financial Times 100 (or FTSE 100) stock index. The annual risk-free rate in the United Kingdom is 5 percent.

a. If the required return on the MSCI world market is 10 percent, what is the required return on Grand Pet stock in an integrated financial market?

b. Suppose the U.K. financial markets are segmented from the rest of the world. If the required return on the FTSE 100 is 10 percent, what is the required return on Grand Pet stock?