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Calculate required rate of return for the stock using Fama and French 4-factor Model and the following information. Show calculations. The answer should be given
Calculate required rate of return for the stock using Fama and French 4-factor Model and the following information. Show calculations. The answer should be given with the precision of two digits after the dot. Please note that the investment horizon is five years. The average long-term annual rate of return on ASX All Ordinaries is 5.2%. However, expected future return on this market index is smaller and equal to 5% for the next five years. Current five-year Treasury bond yield is 0.37%. Assume AGL's beta is equal to 0.5. Excess return of small capitalisation stock over large-cap stocks (SMB) is 0.1% with the sensitivity of AGL stock return to SMB factor is -1.2. Excess return of high book-to-market value stocks over low book-to-market value stock is 0.4% with the appropriate sensitivity factor of 1.4. Price momentum factor is equal to 0.3% with the sensitivity factor of 0.5. Finally, excess return of energy industry over market is 0.45% with an appropriate sensitivity coefficient of -0.2
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