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 = 18% p.a.

Covariance of the companys return with the U.S. stock market returns = 270

Global:

Standard deviation of the companys return = 24% p.a.

Covariance of the companys return with the global stock market returns = 144

In addition, the following market information is available:

U.S. stock market risk premium = 12% p.a.

Standard deviation of the U.S. stock market = 20% p.a.

The risk-free rate in the U.S. = 3% p.a.

Expected return on the global stock market = 20% p.a.

Standard deviation of the global stock market = 30% p.a.