Multiple Choice
The market return is 10% and the risk free rate is 3%. Rascals Inc. has a market beta of 1.0, a SMB beta of ?.60, and a HML beta of ?0.85. The risk premium on HML and SMB are both 2%. If the single factor model generates a regression coefficient of 1.3, 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 Rascal Inc. stock?
A) 2.8%
B) 5.0%
C) 5.2%
D) 6.3%
Correct Answer:
Verified
Correct Answer:
Verified
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