Assume the following data for a stock: Risk-free rate = 5 percent; beta (market)= 1.4; beta (size)= 0.4; beta (book-to-market)= −1.1; market risk premium = 7 percent; size risk premium = 3.7 percent; and book-to-market risk premium = 5.2 percent. Calculate the expected return on the stock using the Fama-French three-factor model.
A)22.3 percent
B)7.8 percent
C)10.6 percent
D)20.9 percent

Question

Quizplus · Accepted Answer

Expected Return = Risk-free rate + Beta (market) * Market risk premium + Beta (size) * Size risk premium + Beta (book-to-market) * Book-to-market risk premium

Expected Return = 5% + 1.4 * 7% + 0.4 * 3.7% + (-1.1) * 5.2%

Expected Return = 10.6%

Assume the Following Data for a Stock: Risk-Free Rate =