Problem 3. [10 pts). Raphael has been assigned the task of estimating the expected returns for three different stocks: Ma, Na, and Qu. His preliminary analysis has established the historical risk premiums associated with three risk factors that could potentially be included in your calculations: the excess return on proxy for the market portfolio (MKT), and two variables capturing general macro-economic exposures (MAC1 and MAC1). These values are: 2MKT= 7.5%, 2MACI=-0.4%, and {MAC2=0.8%. You have also estimated the following factor betas (i.e., loadings) for all three stocks with respect to each of these potential risk factors: Stock MKT MAC1 MAC2 Ma 1.20 -0.45 0.00 Na 0.93 0.65 0.34 Qu 1.30 -0.29 0.00 a. Calculate expected returns for the three stocks using just the MKT risk factor. Assume a risk-free rate of 2.5% b. Calculate the expected returns for the three stocks using all three risk factors and the same 2.5% risk-free rate. Discuss the differences between the expected return estimates from the single-factor model and those from the multifactor model. Which estimates are most likely to be more useful in practice? d. What sort of exposure might MAC2 represent? Given the estimated factors betas, is it reasonable to consider it a common (i.e., systematic) risk factor? c