Three-Factor Model:\

BCD:,[E(R)-RFR]=(0.969)(\\\\lambda _(M))+(-0.009)(\\\\lambda _(SMB))+(-0.383)(\\\\lambda _(HML))\ FGH:,[E(R)-RFR]=(1.028)(\\\\lambda _(M))+(-0.054)(\\\\lambda _(SMB))+(0.361)(\\\\lambda _(HML))\ JKL:,[E(R)-RFR]=(1.158)(\\\\lambda _(M))+(0.521)(\\\\lambda _(SMB))+(0.510)(\\\\lambda _(HML))

\ Four-Factor Model:\

BCD:,[E(R)-RFR]=(1.027)(\\\\lambda _(M))+(-0.021)(\\\\lambda _(SMB))+(-0.360)(\\\\lambda _(HML))+(0.058)(\\\\lambda _(MOM))\ FGH:,[E(R)-RFR]=(1.130)(\\\\lambda _(M))+(-0.016)(\\\\lambda _(SMB))+(0.472)(\\\\lambda _(HML))+(0.189)(\\\\lambda _(MOM))\ JKL:,[E(R)-RFR]=(1.032)(\\\\lambda _(M))+(0.533)(\\\\lambda _(SMB))+(0.353)(\\\\lambda _(HML))+(-0.254)(\\\\lambda _(MOM))

\ a. You have also estimated factor risk premia over a recent 15-year period as:

\\\\lambda _(M)=7.14

percent,

\\\\lambda _(SMB)=2.06

percent,

\\\\lambda _(HML)=4.51

percent, and

\\\\lambda _(MOM)=4.90

\ percent. Use these estimated risk premia along with two factor models estimated to calculate the expected excess returns for the three stocks. Round your\ answers to two decimal places.\ b. Suppose that you have also estimated historical factor risk prices for two different time frames: (1) 30-year period: percent,

\\\\lambda _(SMB )=1.59

\ percent, and

\\\\lambda _(HML)=5.33

percent

Three-Factor Model: BCD:FGH:JKL:[E(R)RFR]=(0.969)(M)+(0.009)(SMB)+(0.383)(HML)[E(R)RFR]=(1.028)(M)+(0.054)(SMB)+(0.361)(HML)[E(R)RFR]=(1.158)(M)+(0.521)(SMB)+(0.510)(HML) Four-Factor Model: BCD:FGH:JKL:[E(R)RFR]=(1.027)(M)+(0.021)(SMB)+(0.360)(HML)+(0.058)(MOM)[E(R)RFR]=(1.130)(M)+(0.016)(SMB)+(0.472)(HML)+(0.189)(MOM)[E(R)RFR]=(1.032)(M)+(0.533)(SMB)+(0.353)(HML)+(0.254)(MOM) a. You have also estimated factor risk premia over a recent 15 -year period as: M=7.14 percent, SMB=2.06 percent, HML=4.51 percent, and MOM=4.90 percent. Use these estimated risk premia along with two factor models estimated to calculate the expected excess returns for the three stocks. Round your answers to two decimal places. b. Suppose that you have also estimated historical factor risk prices for two different time frames: (1) 30 -year period: (M=7.20 percent, SMB=1.59 percent, and HML=5.33 percent), and (2) 80 -year period: (M=7.87 percent, SMB=3.60 percent, and HML=4.97 percent). Calculate the expected excess returns for BCD, FGH, and JKL using both of these alternative sets of factor risk premia in conjunction with the three-factor risk model. Round your answers to two decimal places. c. You now also consider historical estimates for the MOM risk factor over the two additional time frames: (1) MOM=8.03 percent (30-year period), and (2) MOM=9.84 percent ( 80 -year period). Using this additional information, calculate the expected excess returns for BCD, FGH, and JKL in conjunction with the four-factor risk model. Round your answers to two decimal places. d. Do all of the expected excess returns you calculated in part (a) and part (b) make sense? If not, identify which ones seem inconsistent with asset pricing theory and discuss why