please solve a and b

1. CAPM and Multifactor Models (18 points) Consider the following Fama-French (FF) three factor model: rDrf=D+D(rMrf)+SMBrSMB+HMLrHML+eD. where a security D 's monthly excess return is regressed on three benchmark factors. The regression output is (numbers in the parentheses are standard errors): a) Based on the estimated alpha, does the FF model hold? Perform hypothesis testing to answer this question. [Hint: Suppose a t-statistic of 2.0 corresponds to a p-value of 5%. You may want to use this t-statistic cutoff to make the decision.] ( 9 points) b) Suppose the model is true. The T-bill rate is 2%. We forecast the market return (rM) to be 8%, the size portfolio return (rSMB) to be 3% and the book-to-market portfolio return (rHML) to be 4% for the next month. What is the model implied expected return for security D for the next month? ( 9 points) 1. CAPM and Multifactor Models (18 points) Consider the following Fama-French (FF) three factor model: rDrf=D+D(rMrf)+SMBrSMB+HMLrHML+eD. where a security D 's monthly excess return is regressed on three benchmark factors. The regression output is (numbers in the parentheses are standard errors): a) Based on the estimated alpha, does the FF model hold? Perform hypothesis testing to answer this question. [Hint: Suppose a t-statistic of 2.0 corresponds to a p-value of 5%. You may want to use this t-statistic cutoff to make the decision.] ( 9 points) b) Suppose the model is true. The T-bill rate is 2%. We forecast the market return (rM) to be 8%, the size portfolio return (rSMB) to be 3% and the book-to-market portfolio return (rHML) to be 4% for the next month. What is the model implied expected return for security D for the next month? ( 9 points)