Statement 1: Because the Fama-French model has three factors while the CAPM has only one factor, the required rate of return estimated with the Fama-French model will be greater than the required rate of return estimated with CAPM. Statement 2: Suppose the interest rate increases, resulting in an increase in next years's interest expense. This would not change the free cash flow to the firm and would decrease the free cash flow to equity. A. Both statements are correct. B. Both statements are incorrect. C. Only Statement 1 is correct. D. Only Statement 2 is correct. Are these two statements correct? Statement 1: If the present value of residual of residual income is positive, the stock is undervalued and we should issue a buy recommendation on the stock. Statement 2: For a given year in the future, a corporation increases its estimated net income and its future dividend for that year by the same amounts. In a residual income model, the value of the firm would increase A. Both statements are correct. B. Both statements are incorrect. C. Only Statement 1 is correct. D. Only Statement 2 is correct The risk-free rate is 2.0%. In the Fama-French model, the equity risk premium is 4.0%, the size premium is 2.0%, and the value premium is 2.8%. Glude Corp has a market beta of 120, a size beta of. 0.30, and a value beta of 0.30. Approximate Glude's required rate of return using the Fama-French model. A.5% B. 6% C. 7% D. 8% Use the bond-yield-plus-risk-premium (BYPRP) method to estimate the cost of equity for Galveston Corp. A US Treasury bond yields 2.4%, the long-term bond for Galveston yields 4.4%, Glavestion's beta is 1.2, the market risk premium is 40%, and the BYPRP premium for Galveston is 3, 0%. The required return for Glaveston stock is: A, 7.2% B. 8.2% C. 6.4% D. 7.4% Are these two statements correct? Statement 1: Survivorship bias would tend to increase a historical equity risk premium estimate. Statement 2: When "adjusted betas" are used, the estimated beta is adjusted to be closer to 1.0. A high estimated beta is reduced and a low beta is increased. A. Both statements are correct. B. Both statements are incorrect. C. Only Statement 1 is correct. D. Only Statement 2 is correct