Assume the Following Data for a Stock: Risk-Free Rate =

question 24

Multiple Choice

Assume the following data for a stock: Risk-free rate = 5 percent; beta (market) = 1.4; beta (size) = 0.4; beta (book-to-market) = −1.1; market risk premium = 7 percent; size risk premium = 3.7 percent; and book-to-market risk premium = 5.2 percent. Calculate the expected return on the stock using the Fama-French three-factor model.

• A)22.3 percent
• B)7.8 percent
• C)10.6 percent
• D)20.9 percent

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Definitions:

Complex Number

A number that can be expressed in the form \(a + bi\), where \(a\) and \(b\) are real numbers, and \(i\) is the imaginary unit satisfying \(i^2 = -1\).

Additive Inverse

A number that when added to a given number results in a sum of zero; essentially, the negative counterpart of a number.

Quotient

The result obtained when one quantity is divided by another.

Standard Form

A way of writing numbers using the digits 0-9, where each digit is placed in a specific location to indicate its value.