Assume also that the CAPM holds

a$)$ Compute the expected year $1$ cash flow for BA Cityflyer.

$($b$)$ Find the covariance of the cash flow with the market return and its cash flow beta.

$($c$)$ Assuming that historical data suggest that the market risk premium is $8\mathrm{.}4\%$ per yearand the market standard deviation is $40\%$ per year, find the certainty equivalentof the year $1$ cash flow. What are the advantages and disadvantages of using suchhistorical data for market inputs as opposed to inputs from a set of scenarios, likethose given in the table above?

$($d$)$Discount your answer in exercise $($c$)$ at a risk$-$free rate of $4\%$ per year to obtain thepresent value