Suppose the Fama–French three-factor model is appropriate to describe the returns of an equity. Information about those three factors is presented in the following table:

(a) What is the systematic risk of the equity return?

(b) Suppose unexpected bad news about the firm was announced that causes the share price to drop by 2.6 per cent. If the expected return is 9.5 per cent, what is the total return on this equity?

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Factor (R-r) HML SMB B 1.50 -1.40 -0.67 Expected Value (%) 8.4 3.1 9.5 Actual Value (%) 8.1 3.8 10.3