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Assume that the market has an expected return of 12% and volatility (risk or standard deviation) of 20%. Suppose the CAPM accurately describes the data one is using. IBM has a 0.90% correlation with the market and 50% volatility. The risk-free rate is 3%.
a. What is the covariance between IBM and the market?
b. What is IBM’s beta?
c. What is the expected return on IBM?
d. What percentage of IBM’s total variance risk is specific (nonsystematic)?
e. Suppose you want to take only 15% risk on your investment portfolio. What is the best you can do if you invest in only IBM and the risk-free asset?
f. How much better can you do if you add in the market portfolio in part e?
Earnings per share, EPS, for the recession, normal, and expansion scenarios before any debt is issued are $ , $ , and $ , respectively
What are the enterprise-value-to-EBITA multiples for both companies?
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