Question: An analyst is estimating the required return on equity for a company and has gathered the following information: Estimated risk-free rate (10-year government bond)

An analyst is estimating the required return on equity for a company and has gathered the following

An analyst is estimating the required return on equity for a company and has gathered the following information: Estimated risk-free rate (10-year government bond) Estimated equity market return Estimated ERP beta Estimated SMB premium Estimated HML premium Fama-French three-factor regression estimation: 6% 10% 0.8 5% 2% Intercept Coefficient on market factor Coefficient on SMB factor Coefficient on HML factor The Fama-French three-factor model coefficients were estimated using the same risk-free rate that is used in the CAPM. What is the required rate of return based on the Fama-French model? 0.01 0.75 0.15 0.05

Step by Step Solution

★★★★★

3.39 Rating (165 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

To calculate the required rate of return based on the FamaFrench threefactor mo... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

How might Danone improve its financial performance and shareholder returns in the future?

Your supervising attorney, Lillian Liberty, is responsible for conducting a professional training seminar for all the firm's paralegals. Liberty has asked you to prepare "answers" to several...

The beta of Tasty Foods stock of 1.10 used by Rae in computing the required return on equity was based on monthly returns for the past 10 years. If Rae uses daily returns for the past 5 years, the...

Diego Company manufactures one product that is sold for $80 per unit in two geographic regions-the East and West regions. The following information pertains to the company's first year of operations...

Research Problem 5. Choose one of the so-called FAANG stocks (i.e., Facebook, Apple, Amazon, Netflix, Google/Alphabet). Using data that you find at EDGAR or the company website, provide the following...

The following information is taken from the current year financial statements of Cardinal Manufacturing Corporation. (Dollar figures and shares of stock are in thousands.) The first three items are...

Leighs comment about not considering decreases in inventory to be a source of long -term growth in free cash flow for Holt is: A. Inconsistent with a forecasting perspective. B. Mistaken because...

In general, students are expected to meet the following objectives: 1) To ascertain cost of capital for a new project by using cost of capital of existing firms operating in the same business. (2)...

Answer question 1 & 2 Question 1 You recently went to work for Jurong Parts Limited, a company listed on Catalist, which supplies auto repair parts used in the after-market automobiles like Nissan,...

1. Which of the following is (are) used to determine how a given asset will be reported on the balance sheet? 2. Belly-Acres Land Company made capital expenditures during the current year. At...

The following units of a particular item were available for sale during the year: Beginning inventory 150 units at $75 Sale 120 units at $125 First purchase 400 units at $78 Sale 200 units at $125...

Suppose that 18 red beads, 12 yellow beads, eight blue beads, and 12 black beads are to be strung in a row. How many different arrangements of the colors can be formed?

Ford Motor Company allows their tire vendors to access a portion of their computer systems to monitor the production line and demand for their tires. The vendors also use this system to monitor the...

It will cost $2,600 to acquire a small ice cream cart. Cart sales are expected to be $1,400 a year for three years. After the three years, the cart is expected to be worthless as that is the expected...

We have looked in detail at three probability distributions: a. Binomial b. Geometric c. Hypergeometric For each one, i. Explain the conditions in which we would use it ii. Justify the formula used...

1. The doddaballapur head office sends goods to its chikkaballapur branch at a profit of 20% on cost. If the head office sends goods for Rs 1,20,000, calculate the cost price. 2. Find out the loading...

(a) Compare the average power (kW/m) in waves with 2.5 m significant wave height versus 2 m height if both have a peak wave period of 9 s. [2 Marks + 2 Marks] (b) Calculate the energy (kWh'/m)...

The management of Maxim limited intends to replace its obsolete machine. Two machines from different manufacturers are being assessed. The machines will cost the same amount but will generate...

Customers are more likely to switch because of product quality issues than for perceived service problems.Question 5 options:TrueFalse

Giantin Growing AG (GG) is currently selling for 38.50, with TTM EPS and dividends per share of 1.36 and 0.91, respectively. The companys P/E is 28.3, P/B is 7.1, and P/S is 2.9. The ROE is 27.0...

Aratatech is a multinational distributor of semiconductor chips and related products to businesses. Its leading competitor around the world is Trymye Electronics. Aratatech has a current market price...

Holts FCFF (in millions) for 2008 is closest to: A. $ 308. B. $ 370. C. $ 422. Ryan Leigh is preparing a presentation that analyzes the valuation of the common stock of two companies under...

Security Specialists performs security services for local businesses. During 2019, Security Specialists performed $1,425,700 of security services and collected $1,445,000 cash from customers....

The records of Summers Building Company reveal the following information for 2019. a. Cash receipts during 2019 (including $50,000 paid by stockholders in exchange for common stock) were $273,500. b....

Carrico Advertising Inc. performs advertising services for several Fortune 500 companies. The following information describes Carrico's activities during 2019. a. At the beginning of 2019, customers...