(a) An investor is evaluating a two-asset portfolio of the following securities:
Assumptions Expected Return Expected Risk (σ)
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.