Suppose the domestic U.S. beta of IBM is 1.0, and that the expected returms on t

Question

Suppose the domestic U.S. beta of IBM is 1.0, and that the expected returms on the U.S. market portiolo and the wonld markal por both 10 percent, and that the U.S. T-bill rate is 6 percent. if the world beta measure of IBM is 0.7, then we can say ald That " the US markets are tmy ntegrated wit' he rest ofre world, IEMs cost of epity capital would be 1364% lower ran f us. markots were segmented That if the u s. m arkets are Ratyrtegrated with the rest of the world, IBMs cost of egity were segmented tal would be 12% lower arrusmatets That if the U S markets are fully inlegrated with the rest ofthe word,IBMrs cost or equity captal would be onethird lover hair us markets were segmented No sufficient information is available.

Explanation / Answer

Correct answer is option B- That if the US markets are fully integrated with the rest of the world, IBM's cost of equity capital would be 12% lower than if US markets were segmented.

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