Answered step by step
Verified Expert Solution
Question
00
1 Approved Answer
Fand F just decided to invest in a new company but they are concerned that CAPM is missing something'. Their accountant suggests that pricing should
Fand F just decided to invest in a new company but they are concerned that CAPM is missing something'. Their accountant suggests that pricing should include book-to-market effects and size effects as well as the traditional market premium. a) Given the following details, estimate the expected return for the company's equity. Sensitivity Premium Risk-free rate 1 0.04 Market Risk 0.65 0.20 Size (SMB) -0.1 0.11 Value (HML) 0.04 0.60 1 b) Calculate the expected return under CAPM and indicate what impact the use of the CAPM instead of Fama-French model would have when valuing the company. Will it increase your valuation of the company or decrease it
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started