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 3.1%, and the expected risk premium on the book-to-market factor is 4.1%.

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 3.1%, and the expected risk premium on the book-to-market factor is 4.1%.

Explanation / Answer

Exp return on Boeing = 3+1.35*6-.7*3.1+.63*4.1 = 11.513%

EXp return on Johnson^johnson = 3+.86*6-.11*3.1-.16*4.1 = 7.163%

Exp return on Dow chemical = 3+1.21*6+.47*3.1+1.86*4.1 = 19.343%

Exp return on Google = 3+1.62*6-.38*3.1-1.37*4.1 = 5.925%

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