SECTION A Question 1. [8 points] You carry out some analysis on hedge funds and find one with an exposure to the SMB factor of 1.91 (t-stat is 2.88), an exposure to the HML factor of 2.85 (t-stat of 2.01) and exposure to the Momentum factor of -0.82 (t-stat of -1.19). From your analysis, you expect its rate of return for this year to be 37%. If the risk free rate is 2% and you expect the annual value of the SMB is expected to be 5.21, the HML is 11.05, and Momentum is -5.29, should you invest in this hedge fund if you were using the Fama-French 3-Factor model as a benchmark? Justify clearly your answer by making explicit reference to the hedge funds alpha. SECTION A Question 1. [8 points] You carry out some analysis on hedge funds and find one with an exposure to the SMB factor of 1.91 (t-stat is 2.88), an exposure to the HML factor of 2.85 (t-stat of 2.01) and exposure to the Momentum factor of -0.82 (t-stat of -1.19). From your analysis, you expect its rate of return for this year to be 37%. If the risk free rate is 2% and you expect the annual value of the SMB is expected to be 5.21, the HML is 11.05, and Momentum is -5.29, should you invest in this hedge fund if you were using the Fama-French 3-Factor model as a benchmark? Justify clearly your answer by making explicit reference to the hedge funds alpha