For this question, we will use the following tabulated monthly return data (similar to what you worked for #12 in your first assignment): A B D E 1 2 3 Avel Ave2 4 5 SD1 6 SD2 7 Skew1 8 Skew2 9 Kurt1 10 Kurt2 Small Medium 1.2361 1.2558 8.2273 5.3825 High 1.5147 1.3624 10.0162 5.5700 2.3286 -0.4504 18.0033 3.8985 Low 1.0658 0.8986 8.1038 6.8098 1.2889 1.6169 -0.4087 -0.5399 10.2735 13.5372 1.9277 3.2174 All Figures are in Percentages Big Medium 0.9272 0.9908 6.6705 4.7012 4.3725 -0.0257 1.6694 -0.3251 -0.4093 6.7632 17.4930 1.9199 2.3740 F Low 0.9225 0.9267 5.7961 G High 1.2764 1.0887 8.7584 4.9146 1.7480 -0.5204 14.8482 2.7469 Calculate the average monthly return premium on the SMB and HML portfolios in the second period (1971-2018). For example, SMB will be given by [(B4+C4+D4) (E4+F4+G4)]/3. Similarly, HML will be given by [(D4 - B4) + (G4E4)]/2, i.e., the average of the two differences observed. Convert the monthly premiums to annual rates by using the following formula: - P= (1+P)- Note: All the returns in the table above are in percentages. Always perform mathematical operations using numbers in decimal format, in this case, the values divided by 100. b. Recall the 3-factor FF model: E(R) = R + 3 (R - R)+ MB (S-R, -(B-R)) + 3 (H-R, -(L-R,)) B f M M HML = R +3 (RM-R) + SMB (SB) + 3HM (HL) f State the risk/return relationship above, if the annual risk-free rate is 2% and the return on the market portfolio is 6.5%. c. You are valuing a company using the Gordon Growth Model with constant growth rate of 3%, and the most recent dividend payment of $1 per share. Find the fair market value of the company using the CAPM model, if the stock has a beta of 1.2. d. Using the same company and data as in part (c), compute the fair value of the company, if the SMB beta is -0.2, and the HML beta is 0.7. Contrast your finding to that of part (c). What do you conclude? Can you characterize this company with the data available?