Multifactor Models Suppose equity returns can be explained by the FamaFrench three factor model The firm specific risks for all equities are independent The following table shows the information for three diversified portfolios E R ( ) Portfolio A 0 75 1 20 0 04 18 Portfolio B 1 60 0 20 0 07 14 Portfolio C 0 85 1 20 0 65 22 Assuming that the base return on each portfolio is 6 per cent and the risk free rate is 5 per cent, what are the risk premiums for each factor in this model

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Question: Multifactor Models Suppose equity returns can be explained by the FamaFrench three-factor model. The firm-specific risks for all equities are independent. The following table shows

Multifactor Models Suppose equity returns can be explained by the Fama–French three-factor model.

The firm-specific risks for all equities are independent. The following table shows the information for three diversified portfolios:

β γ δ E[R](%)
Portfolio A 0.75 1.20 0.04 18 Portfolio B 1.60 −0.20 0.07 14 Portfolio C 0.85 1.20 0.65 22 Assuming that the base return on each portfolio is 6 per cent and the risk free rate is 5 per cent, what are the risk premiums for each factor in this model?

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