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The Expected Return of TECH is 29.96%, please answer only (b) Our goal is to estimate the cost of capital of a small computer firm
The Expected Return of TECH is 29.96%, please answer only (b)
Our goal is to estimate the cost of capital of a small computer firm TECH using the CAPM and the Fama-French 3-Factor Model. The risk-free rate is 5% and the excess expected return on the market is 9.6%. According to the CAPM the beta of TECH is 2.6 (b) Estimating the factor loadings for the Fama-French model, we find that the factor exposures for the market, size and value factors are 2.1, 1.2 and - 0.4 respectively. BAST = 1.58, SAST=1.19 and hasT=- 0.15. Given that the expected return on the SMB factor is 5.2%, and the expected return on the HML factor is 4.8%, what is the expected return of TECH according to the Fama-French 3-Factor Model? The risk free rate and the expected market return are as above in (a)Step by Step Solution
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