Consider the following two statements and identify which model each describes:

This model uses a single risk factor, the variability of the stock with respect to the market portfolio, to explain the required return on a security or portfolio.

A) Fama-French three-factor model

B) Capital Asset Pricing Model

This model is incorrect because the size effect it uses does not influence stock returns and the book-to-market value effect either is insignificant or is not a function of risk.

A) Fama-French three-factor model

B) Capital Asset Pricing Model

Pam, an analyst at Graffiti Partners (GP), models the stock of the company. Suppose that the risk-free rate rRFrRF = 6.5%, the required market return rMrM = 12.5%, the risk premium for small stocks rSMBrSMB = 3.2%, and the risk premium for value stocks rHMLrHML = 4.8%. Suppose also that Pam ran the regression for Graffiti Partnerss stock and estimated the following regression coefficients: aGPaGP = 0.00, bGPbGP = 0.9, cGPcGP = 0.2, and dGPdGP = 0.3. If Pam uses a Fama-French three-factor model, then which of the following values correctly reflects the stocks required return?

A) 17.94%

B) 3.18%

C) 13.98%

D) 7.48%