In the Fama-French 3-factor model, suppose the factor risk premiums (in % year) are as follows: Factor Risk Premium Factor Market Risk- free rate Beta for the Portfolio 5.0% Market Risk- free rate SMB The estimated factor betas for a portfolio of large agriculture companies are: 1.1 3.0% SMB HML -0.7 7.0% HML 0.9 According to this 3-factor model, what is the expected excess return for this portfolio of agriculture companies? When performing the calculations, do not round any inputs or interim results until you get the final answer. Round your final answer to four places after the decimal point.

In the Fama-French 3-factor model, suppose the factor risk premiums (in % year) are as follows: Factor Risk Premium Factor Market Risk- free rate Beta for the Portfolio 5.0% Market Risk- free rate SMB The estimated factor betas for a portfolio of large agriculture companies are: 1.1 3.0% SMB HML -0.7 7.0% HML 0.9 According to this 3-factor model, what is the expected excess return for this portfolio of agriculture companies? When performing the calculations, do not round any inputs or interim results until you get the final answer. Round your final answer to four places after the decimal point.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The estimated factor sensitivities of Alpha PLC to Fama-French factors and the risk premia associated with those factors are given in the table below: Factor Sensitivity Risk Premium (%) Market factor 1.20 4.5% Size factor -0.50 2.7% Value factor -0.15 4.3% Required: 1.Based on the Fama-French model, calculate the required return for Alpha PLC using these estimates. Assume that the Treasury bill rate is 4.7 percent. 2. Describe the expected style characteristics of Alpha PLC based on its factor sensitivities.
Compute the expected rate of return on investment i given the followinginformation: Rf = 8%; E(RM) = 14%; βi = 1.0.b. Recalculate the required rate of return assuming βi is 1.8.25. a. Compute the expected rate of return on investment i given the followinginformation: the market risk premium is 5%; Rf = 6%; βi = 1.2.b. Compute E(RM)
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Assume that you are given the following historical returns for the Market and Security J. Also assume that the expected risk-free rate for the coming year is 4.0 percent, while the expected market risk premium is 15.0 percent. Given this information, determine the required rate of return for Security J for the coming year, using CAPM. Year 1 2 O21.20% 3 4 5 6 O22.34% O 23.49% O24.63% O24.10% Market 10.00% 12.00% 16.00% 14.00% 12.00% 10.00% Security J 12.00% 14.00% 18.00% 22.00% 18.00% 14.00%
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Suppose that you know that the following well-diversified portfolios are fairly priced in a two-factor economy where the risk-free rate is 5%. Determine the risk premiums associated with each factor and compute the expected market risk premium for the next period based on these figures.: betal beta 2 E(r) p1 1.00 -.5 10% p2 -.5 1.50 10%
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