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In 2012, the US government bond index yield (10-year maturity) is 0.6%. The average return of the US equity markets is 8%, while the global
In 2012, the US government bond index yield (10-year maturity) is 0.6%. The average return of the US equity markets is 8%, while the global equity market returns is 6%. A US companys domestic beta is estimated at 1.3, but its global beta (against the larger global equity market portfolio) is estimated at 0.9.
Calculate this US companys cost of equity based on the domestic portfolio, and based on a global portfolio for a US investor, respectively. (Note: cost of equity is ke = krf + i(km krf))
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