Problem 1: CAPM Beta Consider the stock Sy of a start-up fintech company. The following information is given about the possible future values of Si and the market portfolio Sm: Scenario Si(1) Sm(1) Prob W1 30 110 0.1 W2 15 108 0.3 W3 25 104 0.4 W4 20 100 0.05 12 92 0.15 5 The market portfolio today is worth Sm(0) = 100. Using the CAPM find the price you should pay for one share of the start-up stock today Si(0) =??. Assume a risk-free rate of 4%. Hint: write down the 3 of the biotech stock using 2 ways: (i) from the covariance between the stock and market returns; (ii) from the CAPM equation for the expected return of the stock, us. Both of the equations will feature the unknown Si(0) which can then be solved for. Problem 1: CAPM Beta Consider the stock Sy of a start-up fintech company. The following information is given about the possible future values of Si and the market portfolio Sm: Scenario Si(1) Sm(1) Prob W1 30 110 0.1 W2 15 108 0.3 W3 25 104 0.4 W4 20 100 0.05 12 92 0.15 5 The market portfolio today is worth Sm(0) = 100. Using the CAPM find the price you should pay for one share of the start-up stock today Si(0) =??. Assume a risk-free rate of 4%. Hint: write down the 3 of the biotech stock using 2 ways: (i) from the covariance between the stock and market returns; (ii) from the CAPM equation for the expected return of the stock, us. Both of the equations will feature the unknown Si(0) which can then be solved for