The following table shows the sensitivity of four stocks to the three Fama?Frenc
ID: 2640083 • Letter: T
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
Boeing Beta MRP Market Risk *Beta RF Expected Return Market 1.26 6% 7.56% 3% 10.56% Size 0.83 3.20% 2.66% 3% 5.66% Book-to-market 0.54 5.10% 2.75% 3% 5.75% Average Expected return 7.32% Johnson & MRP Market Risk *Beta RF Expected Return Johnson Market 0.68 6% 4.08% 3% 7.08% Size 0.11 3.20% 0.35% 3% 3.35% Book-to-market 0.14 5.10% 0.71% 3% 3.71% Average Expected return 4.72% Dow Chemical MRP Market Risk *Beta RF Expected Return Market 1.12 6% 6.72% 3% 9.72% Size 0.38 3.20% 1.22% 3% 4.22% Book-to-market 1.77 5.10% 9.03% 3% 12.03% Average Expected return 8.65% Google MRP Market Risk *Beta RF Expected Return Market 1.53 6% 9.18% 3% 12.18% Size 0.37 3.20% 1.18% 3% 4.18% Book-to-market 1.18 5.10% 6.02% 3% 9.02% Average Expected return 8.46%
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