Question: Solve for a and b, fast answer In a two-factor APT model, easyJet has a factor beta of 1.15 on the first factor portfolio, which

Solve for a and b, fast answer

In a two-factor APT model, easyJet has a factor beta of 1.15 on the first factor portfolio, which is highly correlated with the change in GDP, and a factor beta of -0.3 on the second factor portfolio, which is highly correlated with interest rate changes. If the risk-free rate is 5 per cent per year, the first factor portfolio has a risk premium of 2 per cent per year, and the second has a risk premium of -0.5 per cent per year: a Compute the cost of capital for the BA Cityflyer project that uses easyJet as the appropriate comparison firm. Assume no taxes and no need for leverage adjustments. b What is the present value of an expected 1 million BA Cityflyer cash flow one year from now, assuming that easyJet is the appropriate comparison? Assume no taxes and no need for leverage adjustments

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