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16. The Fama-French three-factor model Aa Aa Consider the following two statements and identify which model each describes: This model uses market risk, the company's
16. The Fama-French three-factor model Aa Aa Consider the following two statements and identify which model each describes: This model uses market risk, the company's size, and the company's book-to-market value to estimate the required return on a security This model argues that the realized return on any stock is the sum of the market's risk-free rate and the market premium multiplied by the sensitivity of the stock to this market return O Fama-French three-factor model O Capital Asset Pricing Model Capital Asset Pricing Model Fama-French three-factor model Karine, an analyst at Fantastique Partners (FP), models the stock of the company. Suppose that the risk-free rate rRF = 5%, the required market return rM-1190, the risk premium for small stocks rSMB = 3.200, and the risk premium for value stocks rHML = 4.8%. Suppose also that Karine ran the regression for Fantastique Partners's stock and estimated the following regression coefficients : aFP = 0.00, bFP = 0.7, CFP = 1.2, and dFP = 0.7. If Karine uses a Fama-French three-factor model, then which of the following values correctly reflects the stock's required return? 11.40% 16.40% 19.64% 8.00% O
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