OPPOILS) (5 marks) The pension consulting firm you work at recently learned about multifactor models. They are wondering whether or not they should replace their current single factor model with a multifactor model. a. (3 marks) Explain the benefits and drawbacks of both single factor models and multifactor models. Your boss now wants you to quantify the required returns under your original single factor model and a new Fama-French-Carhart (FFC) model that you recently built. b. (1 mark) Using the data below, calculate the required return of stock X for the single factor model. Risk-free rate = 0.03 Expected return of the market portfolio = 0.09 Beta of stock X = 1.1 c. (1 mark) Using the data below, calculate the required return for the FFC model. c. (1 mark) Using the data below, calculate the required return for the FFC model. Factor Average Return Beta Estimate Mkt 6.0% 0.4 SMB 4.5% -0.6 HML 10.2% -0.2 PR1YR 2.3% 0.44 The annual effective risk-free interest rate is 5%