The Market Return Is 12% and the Risk Free Rate

question 33

Multiple Choice

The market return is 12% and the risk free rate is 4%. Smallish Inc. has a market beta of 0.9, a SMB beta of 0.65, and a HML beta of .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 different in returns between the Three-Factor model and the single factor model expected returns on Smallish Inc. stock?

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

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