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(Solved by Expert Tutors) (a) An investor is evaluating a two-asset portfolio of the following se


Assumptions Expected Return ????????????????????? Expected Risk (?)

Miner Inc. (US) 19.6% 22.8%

Camp Ltd. (UK) ?????????????? 16% 25%

If the two securities have a correlation of +0.5, what are the expected risk and return

for a portfolio that has the minimum combined risk?


(b) Maria, CFO of Trident Inc., estimates that the risk-free rate is 2.5%, the company's

credit risk premium is 5%, the domestic beta is 1.1 and the international beta is 0.95.

The company's capital structure comprises 25% debt and 75% equity. The expected

rate of return on the market portfolio held by a well-diversified domestic investor is

11%. The expected market return for a larger globally integrated equity market is 10%.

The corporate income tax rate is 30%. For both the domestic CAPM and ICAPM,

calculate Trident?s weighted average cost of capital.?

 

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Apr 19, 2020

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