-Assume the Fama-French Model Is the Correct Model to Price

question 31

Multiple Choice

$\begin{array}{|l|l|l|l|}\hline \text { Factor } & {\left[\mathrm{E}\left(\mathrm{R}_{\mathrm{M}}\right) -\mathrm{R}_{\mathrm{F}}\right) } & \mathrm{SMB} & \mathrm{HML} \\\hline \text { Sensitivity } & \mathrm{b}_{\mathrm{i}}=0.60 & \mathrm{~s}_{\mathrm{i}}=-0.44 & \mathrm{~h}_{\mathrm{i}}=0.28 \\\hline \text { Risk premium } & 12.7 \% & -2.17 \% & 3.25 \% \\\hline\end{array}$
-Assume the Fama-French model is the correct model to price assets.If an asset has the above sensitivities and the risk-free rate is 5%,what is the asset's expected return?

• A) \( 16.1 \% \)
• B) \( 15.2 \% \)
• C) \( 14.5 \% \)
• D) \( 20.5 \% \)

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Definitions:

Strongest Recovery

The phase in an economic cycle where an economy experiences the most rapid and robust return to growth following a downturn.

Weakest Recovery

Typically refers to a period of slow or minimal economic growth following a recession or economic downturn.

Rapid Population Growth

A significant increase in the population of an area in a short period, which can lead to challenges such as resource depletion, unemployment, and environmental degradation.

Economic Growth Rate

A measure of the increase in an economy’s output, typically expressed as a percentage increase in real gross domestic product (GDP) over time.