Multiple Choice
The market return is 11% and the risk free rate is 4%. Mammoth Inc. has a market beta of 1.2, a SMB beta of −.78, and a HML beta of −1.2. The risk premium on HML and SMB are both 3%. If the single factor model generates a regression coefficient of 1.2, using the Fama-French Three Factor Model, what is the different in returns between the Three-Factor model and the single factor model expected returns on Mammoth Inc. stock?
A) 5.66%
B) 5.94%
C) 11.3%
D) 16.3%
Correct Answer:
Verified
Correct Answer:
Verified
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