Question: Please see attached question. Using the factor beta estimates in Table 1 shown here and the expected return estimates in Table 2 shown here. Calculate

Please see attached question.

Using the factor beta estimates in Table 1 shown here and the expected return estimates in Table 2 shown here. 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 1.45. How does the risk premium compare with the risk premium you would estimate from the CAPM? Table 1: Estimated Factor Betas, 20052015 Factor MSFT XOM GE MKT 0.32 0.78 1.29 SMB 0.45 0.62 0.39 HML 0.12 0.21 0.82 PR1YR 0.06 0.32 0.22 Table 2: FFC Portfolio Average Monthly Returns, 19272015 Factor Portfolio Average Monthly Return (%) 95% Confidence Band (%) MKT rf 0.65 (+0.33, 0.33) SMB 0.23 (+0.19, 0.19) HML 0.39 (+0.21, 0.21) PR1YR 0.68 (+0.29, 0.29) 1) The monthly risk premium of General Electric stock is %. (Round to three decimal places.) 2) The annual risk premium of General Electric stock is %. (Round to two decimal places.) GE's CAPM beta over the same time period was 1.45. How does the risk premium compare with the risk premium you would estimate from the CAPM? 3) The annual risk premium produced by the CAPM beta is %. (Round to two decimal places.) 4) How does the risk premium compare with the risk premium you would estimate from the CAPM? The annual risk premium produced by the CAPM beta is lower/higher than the annual risk premium of General Electric stock

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