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FINA3401.13791.202610 Asset Pricing Quiz

Short answer

Using the Fama-French model, a firm has a Beta of HML of -0.5, Beta of SMB of -1.4, and Beta on the Market of 1.2. If the expected market risk premium is 7%, the HML return -2.2%, the risk-free rate is 3.3%, and SMB return 1.6%, what is the expected return of the firm? (Answer in % so 6.1% is 6.1 and to one decimal place).  

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Here is how to approach the problem using the Fama–French three-factor framework. First, restate the inputs to ensure we’re using the right numbers: the firm has beta_MKT = 1.2, beta_SMB = -1.4, beta_HML = -0.5. The factor premia are given as: market risk premium = 7......Login to view full explanation

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