The reason behind small firms having relatively high loadings on the SMB factor. Introduction: SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB. HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

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Answer 1

Question

Chapter 10, Problem 19PS

a.

Summary Introduction

To evaluate: The reason behind small firms having relatively high loadings on the SMB factor.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

b.

Summary Introduction

To evaluate: The stock market behavior of the merged firm to differ from that of a portfolio of two previously independent firms.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

c.

Summary Introduction

To evaluate: The effect on merger after market capitalization.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

d.

Summary Introduction

To evaluate: The prediction of the FAMA-French model for the risk premium on the merged firm compared to the weighted average of two-component companies.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

e.

Summary Introduction

To evaluate: The problems faced by the application of the FF model in case of a merger.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

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Answer 2

Question

Chapter 10, Problem 19PS

a.

Summary Introduction

To evaluate: The reason behind small firms having relatively high loadings on the SMB factor.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

b.

Summary Introduction

To evaluate: The stock market behavior of the merged firm to differ from that of a portfolio of two previously independent firms.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

c.

Summary Introduction

To evaluate: The effect on merger after market capitalization.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

d.

Summary Introduction

To evaluate: The prediction of the FAMA-French model for the risk premium on the merged firm compared to the weighted average of two-component companies.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

e.

Summary Introduction

To evaluate: The problems faced by the application of the FF model in case of a merger.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

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Answer 3

Question

Chapter 10, Problem 19PS

a.

Summary Introduction

To evaluate: The reason behind small firms having relatively high loadings on the SMB factor.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

b.

Summary Introduction

To evaluate: The stock market behavior of the merged firm to differ from that of a portfolio of two previously independent firms.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

c.

Summary Introduction

To evaluate: The effect on merger after market capitalization.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

d.

Summary Introduction

To evaluate: The prediction of the FAMA-French model for the risk premium on the merged firm compared to the weighted average of two-component companies.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

e.

Summary Introduction

To evaluate: The problems faced by the application of the FF model in case of a merger.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

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Answer 4

Question

Chapter 10, Problem 19PS

a.

Summary Introduction

To evaluate: The reason behind small firms having relatively high loadings on the SMB factor.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

b.

Summary Introduction

To evaluate: The stock market behavior of the merged firm to differ from that of a portfolio of two previously independent firms.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

c.

Summary Introduction

To evaluate: The effect on merger after market capitalization.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

d.

Summary Introduction

To evaluate: The prediction of the FAMA-French model for the risk premium on the merged firm compared to the weighted average of two-component companies.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

e.

Summary Introduction

To evaluate: The problems faced by the application of the FF model in case of a merger.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

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Answer 5

Chapter 10, Problem 19PS

a.

Summary Introduction

To evaluate: The reason behind small firms having relatively high loadings on the SMB factor.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

b.

Summary Introduction

To evaluate: The stock market behavior of the merged firm to differ from that of a portfolio of two previously independent firms.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

c.

Summary Introduction

To evaluate: The effect on merger after market capitalization.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

d.

Summary Introduction

To evaluate: The prediction of the FAMA-French model for the risk premium on the merged firm compared to the weighted average of two-component companies.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

e.

Summary Introduction

To evaluate: The problems faced by the application of the FF model in case of a merger.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

Answer 6

Chapter 10, Problem 19PS

a.

Summary Introduction

To evaluate: The reason behind small firms having relatively high loadings on the SMB factor.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

Answer 7

Chapter 10, Problem 19PS

a.

Summary Introduction

To evaluate: The reason behind small firms having relatively high loadings on the SMB factor.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

Answer 8

b.

Summary Introduction

To evaluate: The stock market behavior of the merged firm to differ from that of a portfolio of two previously independent firms.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

Answer 9

b.

Summary Introduction

To evaluate: The stock market behavior of the merged firm to differ from that of a portfolio of two previously independent firms.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

Answer 10

c.

Summary Introduction

To evaluate: The effect on merger after market capitalization.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

Answer 11

c.

Summary Introduction

To evaluate: The effect on merger after market capitalization.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

Answer 12

d.

Summary Introduction

To evaluate: The prediction of the FAMA-French model for the risk premium on the merged firm compared to the weighted average of two-component companies.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

Answer 13

d.

Summary Introduction

To evaluate: The prediction of the FAMA-French model for the risk premium on the merged firm compared to the weighted average of two-component companies.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

Answer 14

e.

Summary Introduction

To evaluate: The problems faced by the application of the FF model in case of a merger.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

Answer 15

e.

Summary Introduction

To evaluate: The problems faced by the application of the FF model in case of a merger.

Introduction:

SMB Factor: SMB, when expanded, is small minus big. When a return on portfolio related to small stocks is earned more than the return on portfolio related to large stocks it can be termed as SMB.

HML factor: When the return on a portfolio of high book to market stocks is more than the low book to market stocks, that particular portfolio is considered as HML.

Answer 16

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Answer 19

Ch. 10 - Prob. 1PS Ch. 10 - Prob. 2PS Ch. 10 - Prob. 3PS Ch. 10 - Prob. 4PS Ch. 10 - Prob. 5PS Ch. 10 - Prob. 6PS Ch. 10 - Prob. 7PS Ch. 10 - Prob. 8PS Ch. 10 - Prob. 9PS Ch. 10 - Prob. 10PS

Solution Summary: The author explains the reason behind small firms having relatively high holdings on the SMB factor.

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