Question

The market return is 12% and the risk-free rate is 4%. Smallish Inc. has a market beta of 0.9, an SMB beta of 0.65, and an HML beta of 0.52. The risk premium on HML and SMB are both 2%. If the single-factor model generates a regression coefficient of 0.8, using the Fama-French Three-Factor Model, what is the difference in returns between the Three-Factor model and the single-factor model expected returns on Smallish Inc. stock? A) 4.30% B) 6.86% C) 3.14% D) 5.46%

Name: the market return is 12 and the risk free rate is 4 smallish inc has a market beta of 09 a smb beta of 065 and a hml beta of 52 the risk premium on hml and smb are both 2 if the single factor model ge
Uploaded: 2021-09-22T17:20:04-08:00
Duration: 2 min 32 s
Channel: Aparna Shakti
Description: the market return is 12 and the risk free rate is 4 smallish inc has a market beta of 09 a smb beta of 065 and a hml beta of 52 the risk premium on hml and smb are both 2 if the single factor model ge

          The market return is 12% and the risk-free rate is 4%. Smallish Inc. has a market beta of 0.9, an SMB beta of 0.65, and an HML beta of 0.52. The risk premium on HML and SMB are both 2%. If the single-factor model generates a regression coefficient of 0.8, using the Fama-French Three-Factor Model, what is the difference in returns between the Three-Factor model and the single-factor model expected returns on Smallish Inc. stock?

A) 4.30%
B) 6.86%
C) 3.14%
D) 5.46%

Added by Joseph B.

Calculus: Early Transcendentals

James Stewart 8th Edition

Instant Answer

Solved by Expert Aparna Shakti

09/22/2021

Step 1

The formula is: Expected Return = Risk-free rate + Beta * (Market Return - Risk-free rate) = 4% + 0.9 * (12% - 4%) = 11.2% Show more…

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The market return is 12% and the risk-free rate is 4%. Smallish Inc. has a market beta of 0.9, an SMB beta of 0.65, and an HML beta of 0.52. The risk premium on HML and SMB are both 2%. If the single-factor model generates a regression coefficient of 0.8, using the Fama-French Three-Factor Model, what is the difference in returns between the Three-Factor model and the single-factor model expected returns on Smallish Inc. stock? A) 4.30% B) 6.86% C) 3.14% D) 5.46%