-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:

Oedipal Stage

A phase in Freudian psychosexual development when a child feels a desire for the opposite-sex parent and jealousy towards the same-sex parent.

Freud

Sigmund Freud was an Austrian neurologist and the founder of psychoanalysis, a clinical method for treating psychopathology through dialogue between a patient and a psychoanalyst.

Inner Voice

The internal dialogue or stream of consciousness that reflects one's thoughts, beliefs, or internal monologue.

Superego

In psychoanalytic theory, the part of the personality that acts as a moral center, enforcing societal standards and ethics.