Assume that you are given the annual returns data above:
a) Using CAPM, calculate MFSTs and IBMs required returns. Assume RPM= 2% and Rf=0.5%. Based on CAPM results, which asset has the lowest cost of equity (Re)?
b) Calculate the stocks risk premiums for MSFT and IBM.
c) Assume you are in a job interview and they ask you What are the main factors that affect a stocks beta estimation?. State two factors that affect a stocks beta estimation. (1-2 sentences, you do not need to provide any calculations or numerical answers).
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