You have been employed as a financial analyst and have been asked to estimate the required rate of return on a stock of a firm with high market capitalisation and with growth potential. You have estimated that the risk-free rate is 4% p.a. and the expected return on the market portfolio is 11% p.a. The stock you are evaluating has a market beta of 1.4. The appropriate expected rate of return of this stock would be...

a.

greater than 13.8% if the Fama and French three-factor model holds.

b.

smaller than 13.8% if the Fama and French three-factor model holds.

c.

15% if the CAPM holds.

d.

greater than 15% if the CAPM holds.

e.

13.8% p.a. if the Fama and French three-factor model holds.

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