5. You are working for a financial firm specialised in equity research and your first task is to value United Airlines. The financial firm uses the Fama French model to calculate expected returns. The firm estimates this model by running the following regression for annual stock returns ai BiMRP SML oiHML E where, rf stands for the risk-free rate, MRP for the market risk premium, SML for Fama- French size factor, and HML for Fama-French Book-to-Market factor. (a) What is a factor model? (b) Explain how the SML and HML factors are constructed. (c) Your estimates for B, and 0 are 1.1, 0.2 and 0.3, respectively. Use the average annual factor returns in the table below to calculate United Airlines' expected return. Assume a risk-free rate of 4 Factor portfolio Average annual return Market portfolio 7.32% SML portfolio 3% HML portfolio 3.36%