Question: Suppose that the Fama-French 3-factor model describes security returns, that is E [ r i ] r f = b i E [ r m

Suppose that the Fama-French 3-factor model describes security returns, that is

E [ r i ] r f = b i E [ r m r f ] + s i E [ S M B ] + h i E [ H M L ]

Assume that the risk-free rate is 1%, expected market return is 6%, size premium (E[SMB]) is 2% and the value premium (E[HML]) is 4%. Finally, suppose that Stock A has the following factor betas: _A = 1, _A = 0.8, _A = 0.7.

What is the expected return of stock A?

Group of answer choices

11.4%

10.4%

9.4%

8.4%

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