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Thanks for your comprehensive reply David. The passion that comes through is a big reason why I make sure I thoroughly understand your explanations - wouldnt want it to go to waste! Cheers Roy

Thanks David thats very clear, Some points: 1. E(St) = spot(0) * (1 + 5% RF * 6% ERP * 0.5 beta) should be E(St) = spot(0) * (1 + 5% RF + 6% ERP * 0.5 beta) ? 2. Are you assuming E(R) = E(S_future) / E(S_current)? in this case you are using arithmetic return instead log reutrn...

Hi David, IIn slide 15, you summarised the firm's different beta's to show the hedging irrelevance proposition. My question is how did you calculate the different Expected Future Spot prices E(S)? Thanks Roy