Question: 2. Using the factor beta estimates in Table 1 below and the expected return estimates in Table 2 below, calculate the risk premium of General

2. Using the factor beta estimates in Table 1 below and the expected return estimates in Table 2 below, calculate the risk premium of General Electric stock (ticker: GE) using the FFC factor specification. (Annualize your result by multiplying by 12.) GE's CAPM beta over the same time period was 1.32. How does the risk premium compare with the risk premium you would estimate from the CAPM? Factor Mkt SMB HML PR1YR Table 1: Estimated Factor Betas MSFT 0.965 0.808 -0.295 -0.812 -0.099 0.196 -0.089 0.376 GE 1.159 -0.496 0.905 -0.196 Factor Portfolio Mkt- SMB HML PR1YR Table 2: FFC Portfolio Average Monthly Returns, 1927-2012 Average Monthly Return (%) 95% Confidence Band (%) 0.585 +0.34 0.256 +0.20 0.389 +0.22 0.744 +0.29 The risk premium (monthly) of General Electric stock is %. (Round to three decimal places.) The risk premium (annual) of General Electric stock is %. (Round to two decimal places.) GE's CAPM beta over the same time period was 1.32. How does the risk premium compare with the risk premium you would estimate from the CAPM? The annual RP produced by the CAPM beta is %. (Round to two decimal places.) How does the risk premium compare with the risk premium you would estimate from the CAPM? (Select from the drop-down menu.) The annual RP produced by the CAPM betais (1) than the risk premium (annual) of General Electric stock (1) O lower O higher ID: P13-26 (similar to) 2. Using the factor beta estimates in Table 1 below and the expected return estimates in Table 2 below, calculate the risk premium of General Electric stock (ticker: GE) using the FFC factor specification. (Annualize your result by multiplying by 12.) GE's CAPM beta over the same time period was 1.32. How does the risk premium compare with the risk premium you would estimate from the CAPM? Factor Mkt SMB HML PR1YR Table 1: Estimated Factor Betas MSFT 0.965 0.808 -0.295 -0.812 -0.099 0.196 -0.089 0.376 GE 1.159 -0.496 0.905 -0.196 Factor Portfolio Mkt- SMB HML PR1YR Table 2: FFC Portfolio Average Monthly Returns, 1927-2012 Average Monthly Return (%) 95% Confidence Band (%) 0.585 +0.34 0.256 +0.20 0.389 +0.22 0.744 +0.29 The risk premium (monthly) of General Electric stock is %. (Round to three decimal places.) The risk premium (annual) of General Electric stock is %. (Round to two decimal places.) GE's CAPM beta over the same time period was 1.32. How does the risk premium compare with the risk premium you would estimate from the CAPM? The annual RP produced by the CAPM beta is %. (Round to two decimal places.) How does the risk premium compare with the risk premium you would estimate from the CAPM? (Select from the drop-down menu.) The annual RP produced by the CAPM betais (1) than the risk premium (annual) of General Electric stock (1) O lower O higher ID: P13-26 (similar to)

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