A company, XYZ, is currently listed in Korea and is considering launching a depository receipt (DR) program in the USA. It believes that the Korean market is segmented from other capital markets and by cross-listing in the USA via a DR program, the company may be able to lower its cost of equity capital. It wishes to use the CAPM to quantify the possible benefits of cross-listing. It has computed the following statistics regarding the stock returns and correlations with respect to the Korea and US market index: Expected Returns and Standard Correlation Coefficients Deviation KR market US market E[R] (%) SD (%) XYZ index index XYZ 25 1 0.85 0.45 KR market 10 22 1.00 0.58 index US market 8 18 1.00 index The risk free rate in Korea is 2.5% and the risk free rate in the US is 1.5%. B2 (a) (4 marks) Compute the expected cost of equity capital for XYZ according to the CAPM when XYZ is priced according to the Korean market only. B2 (b) (4 marks) Compute the expected cost of equity capital for XYZ according to the CAPM when XYZ is priced according to the US market only. B2 (c) (7 marks) How does the expected cost of equity capital in part (a) and (b) change when the respective expected market returns in Korea and the US change, holding everything else constant? How does your answer change if the market risk-premium stays constant too? Briefly explain your