Problem $2$

The investor evaluates the following two funds:

She uses the historical returns to estimate the expected return for above $2$ funds using

Fama$-$French $3-$factor model as follows:

$r_i-r_f={}_i+{}_{i,mkt}(r_{mkt}-r_f)+{}_{i,smb}{r}_{smb}+{}_{i,hml}{r}_{hml}+lo{n}_i$

The result from the estimations are:

a$.[4$pts$]$ What do the estimated betas $({}_{i,mkt},{}_{i,smb},{}_{i,hml})$ tell you about funds' loadings

on the SMB and HML factors? Are these consistent with the funds' styles as described

in the investment menu?

b$.[2$pt$]$ What are the funds' expected returns if the current risk$-$free rate is $4\mathrm{.}00\%$ and the

analyst predicts that the market expected return, SMB$,$ and HML are $10\mathrm{.}00\%,3\mathrm{.}00\%,$

and $4\mathrm{.}00\%?$