Suppose the Mexican stock market is segmented from the rest of the world. Using the CAPM paradigm, estimate the equity cost of capital of Telmex.

The above table provides the correlations among Telemx, a telephone/communication company located in Mexico, the Mexico stock market index, and the world market index, together with the standard deviations (SD) of returns and the expected returns (R). The risk-free rate is 5%.

Transcribed Image Text:

Correlation Coefficients SD (%) 18 15 10 R1%) Telmex Mexico World Telmex 1.00 Mexico 90 1.00 Worid 0.60 0.75 1.00 14 12