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HW 10 Q7. The risk-free interest rate is 4% and the expected return on the market portfolio is 10%. Assume the return on the size
HW 10 Q7. The risk-free interest rate is 4% and the expected return on the market portfolio is 10%. Assume the return on the size factor is 3.5% and the return on the B/M factor is 5%. Scotts portfolio has a market beta of 2/3, a SMB of 0.9, and a HML of -0.5. The average annual return on his portfolio is 9%.
Based on the FF3 factor model, what is the abnormal return (i.e. ) of Scotts portfolio?
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