India's sovereign bond rating was Baa3 in 2013, implying a default spread of 2%.The Indian government issue 10-year bonds at that time in rupees, with a yield of 6.25%. The US Equity Risk Premium was 5.5%. The standard deviation of Indian stock market was 18%, and the standard deviation of its government bond was 9%.

What is the Equity Risk Premium for India adjusted for relative riskiness of stock market relative to the bond market?

What is the cost of equity for a 100% Indian company with a beta of 1.08 to the Indian stock market.

Select one:

a. Adjusted ERP = 8.44%
New Cost of Equity = 15.06%

b. Adjusted ERP = 9.50%
New Cost of Equity = 14.51%

c. Adjusted ERP = 17.14%
New Cost of Equity = 22.06%