Question
Assume that BA Cityflyer has the following joint distribution with the market return: Market scenario Probability Market return (%) Year 1 cash fl w forecast
Assume that BA Cityflyer has the following joint distribution with the market return:
| Market scenario | Probability | Market return (%) | Year 1 cash fl w forecast () |
| Bad | 0.25 | -15 | 20 million |
| Good | 0.50 | 5 | 25 million |
| Great | 0.25 | 25 | 30 million |
Assume also that the CAPM holds.
- Compute the expected year 1 cash flow for BA Cityflyer.
- Find the covariance of the cash flow with the market return and its cash flow beta.
- Find the present value if the risk free rate is 4%.
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The Oxford Handbook Of Pricing Management
Authors: Ozalp Ozer, Robert Phillips
1st Edition
0199543178, 978-0199543175
