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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Definitions:

Pleasure-Seeking Energies

Pleasure-Seeking Energies involve the basic drives and instincts that compel individuals to seek out experiences or objects that provide gratification and enjoyment.

Conflict

A situation or process in which individuals, groups, or interests are in opposition, leading to disputes or confrontations.

Gender Identity

An individual's personal sense of their own gender, which may or may not correspond with their sex assigned at birth.

Male

A sex that typically produces small, mobile gametes, such as sperm, characteristic of males in species that have sexual reproduction.