Michael, an analyst at Kitsch Partners (KP), models the stock of the company. Suppose that the risk-free rate rRFrRF = 6.5%, the required market return rMrM = 12.5%, the risk premium for small stocks rSMBrSMB = 3.2%, and the risk premium for value stocks rHMLrHML = 4.8%. Suppose also that Michael ran the regression for Kitsch Partners’s stock and estimated the following regression coefficients: aKPaKP = 0.00, bKPbKP = 0.9, cKPcKP = 0.2, and dKPdKP = 0.3. If Michael uses a Fama-French three-factor model, then which of the following values correctly reflects the stock’s required return? 3.18%   17.94%   7.48%   13.98%

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
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Michael, an analyst at Kitsch Partners (KP), models the stock of the company. Suppose that the risk-free rate rRFrRF = 6.5%, the required market return rMrM = 12.5%, the risk premium for small stocks rSMBrSMB = 3.2%, and the risk premium for value stocks rHMLrHML = 4.8%. Suppose also that Michael ran the regression for Kitsch Partners’s stock and estimated the following regression coefficients: aKPaKP = 0.00, bKPbKP = 0.9, cKPcKP = 0.2, and dKPdKP = 0.3. If Michael uses a Fama-French three-factor model, then which of the following values correctly reflects the stock’s required return?
3.18%
 
17.94%
 
7.48%
 
13.98%
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