1. In 2013, the yield of the UK 10-year government bond is 0.4%. The return of the UK equity market is 6%, while the return of the global equity market is 5%. A UK companys domestic beta is estimated at 0.9, but its global beta (against the larger global equity market portfolio) is estimated at 0.5. Calculate this UK companys cost of equity based on the domestic portfolio and global portfolio from UK investors perspective, respectively.

2. Describe why capital market illiquidity and segmentation has an important influence on a firms marginal cost of capital and thus its weighted average cost of capital. Discuss how multinational enterprises (MNEs) can tackle this problem. Use charts to explain your answer where appropriate.