1. A Canada-based investor buys shares of T0ronto-Dominion Bank (TO) for C$72.08 on 15 October 2007 with the intent of holding them for a year. The dividend rate was C$2.11 per year. The investor actually sells the shares on 5 November 2007 for C$69.52.

The investor notes the following additional factors:

No dividends were paid between 15 October and 5 November.

The required return on TO equity was 8.7% on an annual basis and 0.161% on a weekly basis.

a. State the lengths of the expected and actual holding-periods.

b. Given that TO was fairly priced, calculate the price appreciation return (capital gains yield) anticipated by the investor given his initial expectations and initial expected holding period.

c. Calculate the investors realized return.

d. Calculate the realized alpha.

2. The estimated factor sensitivities of TerraNova Energy to Fama-French factors and the risk premia associated with those factors are given in the table below: Factor sensitivity & Risk premium (%) consequently.

Market factor 1.20 & 4.5

Size factor -0.50 & 2.7

Value factor -0.15 & 4.3

a. Based on the Fama-French model, calculate the required return for TerraNova Energy using these estimates. Assume that the Treasury bill rate is 4.7%.

b. Describe the expected style characteristics of TerraNova based on its factor sensitivities.