The Market Return Is 10% and the Risk Free Rate

question 44

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%

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Definitions:

Ingestion

The act of taking food, drinks, or other substances into the body through the mouth.

Absorption

The process by which substances are taken up into the bloodstream, particularly in the context of nutrients from the digestive system.

Herpes Simplex I

A type of the herpes simplex virus causing oral herpes, typically characterized by cold sores or fever blisters around the mouth.

Oral

Pertaining to the mouth; often used to describe medications taken by mouth.