Suppose the Carhart (1997) factor model is appropriate to describe the returns on an equity. The current expected return on the equity is 10.5 per cent. Information about the factors is presented in the following table:

(a) What is the systematic risk of the equity return?

(b) The firm announced that its market share had unexpectedly increased from 23 per cent to 27 per cent. Investors know from past experience that the share price return will increase by 0.36 per cent for every 1 per cent increase in its market share. What is the equity’s unsystematic risk?

(c) What is the equity’s total return?

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Factor (R-r) HML SMB Momentum B 1.04 -1.90 0.60 0.44 Expected Value (%) 3.5 7.1 2.4 0.23 Actual Value (%) 4.8 7.8 6.4 -3.2