(24–3)

Fama-French Three-

Factor Model An analyst has modeled the stock of a company using the Fama-French threefactor model. The risk-free rate is 5%, the required market return is 10%, the risk premium for small stocks (rSMB) is 3.2%, and the risk premium for value stocks (rHML) is 4.8%. If ai

= 0, bi = 1.2, ci = −0.4, and di = 1.3, what is the stock’s required return?

INTERMEDIATE PROBLEMS 4–6