The following table shows the sensitivity of four stocks to the three Fama?Frenc

Question

The following table shows the sensitivity of four stocks to the three Fama?French factors. Assume that the interest rate is 3%, the expected risk premium on the market is 6%, the expected risk premium on the size factor is 3.2%, and the expected risk premium on the book-to-market factor is 5.1%.

Calculate the expected return on each stock. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

The following table shows the sensitivity of four stocks to the three Fama?French factors. Assume that the interest rate is 3%, the expected risk premium on the market is 6%, the expected risk premium on the size factor is 3.2%, and the expected risk premium on the book-to-market factor is 5.1%.

Explanation / Answer

Expected Return of Boeing = 3 + (6 * 1.26) + (3.2 * 0.83) + (5.1 * 0.54) = 15.97%

Expected Return of Johnson & Johnson = 3 + (6 * 0.68) + (3.2 * 0.11) + (5.1 * 0.14) = 8.15%

Expected Return of Dow Chemical = 3 + (6 * 1.12) + (3.2 * 0.38) + (5.1 * 1.77) = 19.96%

Expected Return of Google = 3 + (6 * 1.53) + (3.2 * 0.37) + (5.1 * 1.18) = 19.38%

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.