Question: Suppose that the Fama-French 3-factor model describes security returns, that is E[r]- r = b; E ['m ry] + s; E[SM B] + h; E

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

Suppose that the Fama-French 3-factor model describes security returns, that is E[r]- r = b; E ['m ry] + s; E[SM B] + h; E [HML] 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: ba = 1, sa = 0.8, ha = 0.7. What is the expected return of stock A? 3.2% 18.4% 10.4% 5.6%

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