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Year IBM’s yearly stock return Yearly return on the S&P500 1999 17.02% 21.04% 2000 -21.21% -9.10%...

Year

IBM’s yearly stock return

Yearly return on the S&P500

1999

17.02%

21.04%

2000

-21.21%

-9.10%

2001

13.09%

-1.89%

2002

16.22%

-22.10%

The riskless rate for this period is 3.5%, and the covariance between returns on IBM stock and the S&P500 over this period is 0.02276.

1E. What is the variance of the S&P500 over this period? 2 points

1F. What is IBM’s CAPM beta according to this data? 5 points

1G. What is IBM’s CAPM cost of equity according to this data? 5 points

1H. If IBM’s debt to equity ratio is 0.57, what is their unlevered cost of equity according to this model? 5 points

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