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Quantitative solutions can be used to check your work. But, you are expected to develop and show Excel formulas for these solutions . The path
- Quantitative solutions can be used to check your work. But, you are expected to develop and show Excel formulas for these solutions. The path to the solution is where you will be evaluated.
- Problem 6-4: You can assume one of two things. First, you can decide to adjust the solution for 5% risk free rate of return (as described in the unassigned Prob. 6-3) to get the correct answer 15.96% (the check figure in the back of the textbook was showing 10.96% incorrectly). Or, it is acceptable to ignore the issue of making this adjustment in which case the solution is 16.96%.
(6-4) Fama-French Three-Factor Model An analyst gathered daily stock returns for Feburary 1 through March 31, calculated the Fama- French factors for each day in the sample (SMB, and HML), and estimated the Fama-French regression model shown in Equation 6-21. The estimated coefficients were a = 0, b; = 1.2, C = -0.4, and d; = 1.3. On April 1, the market return was 10%, the return on the SMB portfolio (rsme) was 3.2%, and the return on the HML portfolio (tema) was 4.8%. Using the estimated model, what was the stock's predicted return for April 1? Answer 16.96% (6-5) Expected Return: Discrete Distribution A stock's return has the following distribution: Demand for the Company's Products Weak Below average Average Above average Strong Probability of this Demand Occurring 0.1 0.2 0.4 Rate of Return if This Demand Occurs (%) -50% 0.2 16 25 60 0.1 1.0 Calculate the stock's expected return and standard deviation. Answer f = 11.40%; 0 = 26.69%
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