USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y, and stock Z, that have the following factor loadings (or factor betas).
$USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the three stocks, stock X, stock Y, and stock Z, that have the following factor loadings (or factor betas). The zero-beta return ( \lambda 0) = 3 percent, and the risk premia are \lambda 1 = 10 percent and \lambda 2 = 8 percent. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 7.9. The expected returns for stock X, stock Y, and stock Z are A) 3 percent, 8 percent, 10 percent B) 7.1 percent, 10.5 percent, 8.8 percent C) 7.1 percent, 8.8 percent, 10.5 percent D) 10 percent, 5.5 percent, 14 percent E) 14 percent, 5.5 percent, 12 percent$ The zero-beta return (

\lambda

0) = 3 percent, and the risk premia are

\lambda

1 = 10 percent and

\lambda

2 = 8 percent. Assume that all three stocks are currently priced at $50.
-Refer to Exhibit 7.9. The expected returns for stock X, stock Y, and stock Z are
A) 3 percent, 8 percent, 10 percent
B) 7.1 percent, 10.5 percent, 8.8 percent
C) 7.1 percent, 8.8 percent, 10.5 percent
D) 10 percent, 5.5 percent, 14 percent
E) 14 percent, 5.5 percent, 12 percent

Fama and French Suggest a Three-Factor Model Approach

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