Fama-French Model You have run a portfolio for the past ten years, to the following returns. In addition, you have the Fama-French factors for that period of time.

(a) You assume the expected return on the market is the average of the market return (from the table). Same with the risk-free rate. Given this, what is the expected return on the portfolio according to CAPM?

(b) Again assuming the expected SMB and HML values are the averages of the historical values provided, use all three factors to predict the risk premium of the portfolio.

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Year Portfolio return Mkt-rf SMB HML RF 1 15.50% 30.75% 26.18% 5.40% 3.02% 2 12.20 15.96 -3.72 6.13 5.21 3 8.05 11.55 5.90 14.77 4.35 4 -2.30 -3.87 -11.00 -1.64 5.47 5 -11.98 -15.2 18.09 19.52 3.83 6 10 -3.12 -17.54 -13.98 -9.81 4.58 7 5.57 1.04 -7.14 -14.65 4.66 8 14.91 17.37 13.78 -5.31 2.12 9 22.16 28.28 -5.93 -12.14 2.14 10 18.71 22.13 5.57 -25.05 3.24