Discuss the Portfolio Formation Process Using Size and Book-To-Market Ratio

question 16

Essay

Discuss the portfolio formation process using size and book-to-market ratio in the Fama-French Multi Index Model

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Definitions:

Raw Material Purchase

The process of acquiring the basic materials needed for production of goods.

Fixed Manufacturing Overhead

Fixed manufacturing overhead costs are those production expenses that do not vary with the volume of production, such as salaries of managerial staff and rent of the factory.

Budgeted Fixed Manufacturing Overhead

The predetermined amount of fixed overhead expenses expected to be incurred in the manufacturing process.

Net Operating Income

Profit of a business after all operating expenses, excluding taxes and interest, have been deducted from total revenue.