Question
Hello, I need this in 25 minutes a. An analyst has modeled XYZ stock using the Fama & French three factor model (FF3FM). Over the
Hello, I need this in 25 minutes
a. An analyst has modeled XYZ stock using the Fama & French three factor model (FF3FM). Over the past few years the risk premium on SMB was 1.75% and the risk premium on HML was 2.95%. Regression analysis shows that XYZs beta coefficient on SMB is 2.5 and on HML is -1.25. If the riskfree rate is 2.25%, the market risk premium is 5.50%, and XYZs market beta is 2.0, what is a fair rate of return on XYZ according to the FF3FM?
b. Using the data from problem a, if you forecasted an expected return of 13.25% for stock XYZ, is it overvalued, undervalued, or fairly valued? Briefly, why?
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