QUESTION 3 The table below provides the correlations among Emmer Corporation, a production company located in Brazil, the Brazil stock market index, and the world market index, together with the standard deviations of returns and the expected returns. The risk-free rate is 8 percent. Correlation Coefficients Standard Expected Emmer Brazil World Deviation Return Emmer 1.00 0.90 0.60 18% Brazil 1.00 0.75 15% 13% World 1.00 10% 11% Required: (a) Suppose the Brazil stock market is segmented from the rest of the world. Using the Capital Asset Pricing Model (CAPM) paradigm, calculate the equity cost of capital of Emmer Corporation. (b) Suppose Emmer Corporation has made its shares tradeable internationally via cross-listing on New York Stock Exchange (NYSE). Calculate Emmer's equity cost of capital using CAPM. (c) Briefly explain the possible effects of international pricing of Emmer shares on the share prices and the firm's investment decisions. QUESTION 3 The table below provides the correlations among Emmer Corporation, a production company located in Brazil, the Brazil stock market index, and the world market index, together with the standard deviations of returns and the expected returns. The risk-free rate is 8 percent. Correlation Coefficients Standard Expected Emmer Brazil World Deviation Return Emmer 1.00 0.90 0.60 18% Brazil 1.00 0.75 15% 13% World 1.00 10% 11% Required: (a) Suppose the Brazil stock market is segmented from the rest of the world. Using the Capital Asset Pricing Model (CAPM) paradigm, calculate the equity cost of capital of Emmer Corporation. (b) Suppose Emmer Corporation has made its shares tradeable internationally via cross-listing on New York Stock Exchange (NYSE). Calculate Emmer's equity cost of capital using CAPM. (c) Briefly explain the possible effects of international pricing of Emmer shares on the share prices and the firm's investment decisions