Question 5 (Essential to cover) The data in the table below was estimated using returns for the period 2001 to 2011. E(r) BMICROSOFT, factor BCOCA-COLA, factor BCHEV RON, factor BGE, factor TM-rf 2.7% 1 0.6 1 1.1 PSMB 5% -0.25 -0.23 -0.46 -0.21 THML 4.1% -0.67 -0.08 0.33 0.19 1.3% -0.15 0.15 -0.4 -0.26 a. What can you conclude about the return on stocks with high book-to- market ratios relative to stocks with low book-to-market ratios? What can you conclude about the return on large capitalisation stocks relative to small capitalisation stocks? b. Suppose that the risk-free rate is 3%. What is the expected return of Chevron