3. A U.S. based MNC has the following two sets of information, one for its domestic operations and one for its global operations:

Domestic:

Standard deviation of the companys return = 14% p.a.

Covariance of the companys return with the U.S. stock market returns = 175 (or 0.0.0175 if you use decimals instead of %).

Global:

Standard deviation of the companys return = 22% p.a.

Covariance of the companys return with the global stock market returns = 82 (or 0.0082)

In addition, the following market information is available:

U.S. stock market expected return = 14% p.a.

Standard deviation of the U.S. stock market = 16% p.a.

The risk-free rate in the U.S. = 2% p.a.

Expected return on the global stock market = 21% p.a.

Standard deviation of the global stock market = 24% p.a.

Show which cost of equity is lower and analyze the differences at all levels and for all components (st. deviations, correlations, betas, and risk premiums) to explain the difference.