Question 16 Suppose that the Australian stock market is segmented from the rest of the world. Using the CAPM and a risk-free rate of 5 percent, estimate the equity cost of capital for a local firm BigMelb Correlation Coefficients BigMelb ASX World SD(%) E(R) (%) BigMelb 1.00 0.90 0.60 20 ? ASX 1.00 0.80 18 14 World 1.00 15 12 [ O none of the others 9% 10.60% O 14% 12%