Suppose you are given the following information. Firm i's beta, bi, is 1.1, the risk-free rate, rRF, is 7%, and the expected market premium, rM - rRF, is 6.5%. (Assume that ai - 0.0). Because your company is smaller than average and more successful than average (that is, it has a low booking-to-market ratio), you think the Fama-French three-factor model might be more appropriate than the CAPM. You estimate the additional coefficients of the Fama-French three-factor model: ?e coefficient for the size effect, ci, is 0.7, and the coefficient for the book-to-market effect, di, is -0.3. If the expected value of the size factor is 5% and the expected value of the book-to-market factor is 4%, what is the required return using the Fama-French three-factor model?

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The FamaFrench threefactor model is r i r RF i r M r RF c i r S r ... View the full answer