Question: Problem1: An analyst has modeled XYZ stock using the Fama & French three factor model (FF3FM). Over the past few years the risk premium on

Problem1:

An analyst has modeled XYZ stock using the Fama & French three factor model (FF3FM). Over the past few years the risk premium on SMB was 2.95% and the risk premium on HML was 3.95%. Regression analysis shows that XYZs beta coefficient on SMB is 2.25 and on HML is -2.50. If the riskfree rate is 3.50%, the market risk premium is 7.75%, and XYZs market beta is 1.80, what is a fair rate of return on XYZ according to the FF3FM?

Problem 2: Using the data from problem 1, if you forecasted an expected return of 17.00% for stock XYZ, is it overvalued, undervalued, or fairly valued? Briefly, why?

Answer Problem 2 Please

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