Problem 7-09 Suppose that you have estimated the Fama-French three-factor and four-factor models for three different stocks: BCD, FGH, and KL. Specifically, using return data from 2005 to 2005, the following equations were estimated Three-Factor Model: BCD: [E(R)-RFR] (0.949))+(-0.026)(A)+(-0.367)(A) FGH [E(R)-RFR] (1.0674)+(-0.034XA) + (0.346)(A) KL [E(R)-RFR] (1.180)(A) + (0.518)(As) + (0.519)(A) Four-Factor Model: BCD FGH JKL [E(R) AFR) (0.974)(A) + (-0.019)(Aswa) +(-0.357)(A) + (0.101)(A) [E(R)-RFR] (1.105)(A)+(-0.039)(A) + (0.481)(A) + (0.192)(A) [E(R) AFR] (1.066)(A) + (0.498)(A) + (0.309)(A) + (-0.293)(Am) a. You have also estimated factor risk premia over a recent 15-year period as: A 7.30 percent, Ass 1.97 percent, Awe-4.47 percent, and ANOM 4.92 percent. Use these estimated risk premia along with two factor models estimated to calculate the expected excess returns for the three stocks. Round your answers to two decimal places. Three-factor model Four-factor model BCD: FGH: JKL: % b. Suppose that you have also estimated historical factor risk prices for two different time frames: (1) 30-year period: (A-7.02 percent, Ase 1.53 percent, and A 5.31 percent), and (2) 80- year period: (A7.83 percent, A-3.71 percent, and A5.05 percent). Calculate the expected excess returns for BCD, FGH, and JKL using both of these alternative sets of factor risk premia in conjunction with the three-factor risk model. Round your answers to two decimal places. BCD 30-year period 80-year period % FGH: JKL: % You now also consider historical estimates for the MOM risk factor over the two additional time frames: (1) Awow-8.02 percent (30-year period), and (2) Awow -9.73 percent (80-year period), Using this additional information, calculate the expected excess returns for BCD, FGH, and KL in conjunction with the four-factor risk model. Round your answers to two decimal places. BCD: FGH: JKL 30-year period 80-year period % % % d. Do all of the expected excess returns you calculated in part (a) and part (b) make sense? If not, identify which ones seem inconsistent with asset pricing theory and discuss why The excess returns for w for all periods seem moderately large. This is partly due to the fact that the regressions unlike factor risk premia were estimated using data from much deled periods