SECTION A Question 1. [10 points] Consider the following two excess returns from a factor model with three factors for Stock A and Stock B. The factors are (i) Momentum (denoted below as F1), (ii) Size (denoted below as F2), and (iii) Value (denoted below as F3). The risk free rate over this period was 1% and the market's average return was 11%. Factor model regression estimates Stock A -0.5% + 1.2(F1) + 0.7(F2) + 1.1(F3) -1.82 2.49 Stock B 0.5% + 0.9(F1) + 1.8(F2) + 0.5(F3) 2.11 2.01 1.56 2.80 t-stat of the intercept from the market model t-stat of the coefficient estimate for the exposure to F1 t-stat of the coefficient estimate for the exposure to F2 t-stat of the coefficient estimate for the exposure to F3 Rsquared 2.32 1.77 0.58 0.44 i. Calculate the alpha for each stock ii. From the stocks' exposures to the three factors shown above, what can you say about the firm characteristics (firm type, such as size etc.) you presume/think Stock A and Stock B have? SECTION A Question 1. [10 points] Consider the following two excess returns from a factor model with three factors for Stock A and Stock B. The factors are (i) Momentum (denoted below as F1), (ii) Size (denoted below as F2), and (iii) Value (denoted below as F3). The risk free rate over this period was 1% and the market's average return was 11%. Factor model regression estimates Stock A -0.5% + 1.2(F1) + 0.7(F2) + 1.1(F3) -1.82 2.49 Stock B 0.5% + 0.9(F1) + 1.8(F2) + 0.5(F3) 2.11 2.01 1.56 2.80 t-stat of the intercept from the market model t-stat of the coefficient estimate for the exposure to F1 t-stat of the coefficient estimate for the exposure to F2 t-stat of the coefficient estimate for the exposure to F3 Rsquared 2.32 1.77 0.58 0.44 i. Calculate the alpha for each stock ii. From the stocks' exposures to the three factors shown above, what can you say about the firm characteristics (firm type, such as size etc.) you presume/think Stock A and Stock B have