The equity beta of Mothercorp Ltd is 1.10, the market risk premium is expected to be 9%, and the yield on government bondsis currently 12%. Mothercorp Ltd issued bonds (R100 par value) that are currently trading at R80 and have a 5% coupon rate. The corporate tax rate is currently 25% and the maturity date of the bonds is in 10 years.

Using the CAPM, calculate the cost of equity and the market's overall expected rate of return (Rm). Thereafter, interpret these values.