In: Finance
Question 1.
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?
1F. What is IBM’s CAPM beta according to this data?
1G. What is IBM’s CAPM cost of equity according to this data?
1H. If IBM’s debt to equity ratio is 0.57, what is their unlevered cost of equity according to this model?