Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The table below shows the estimated factor loadings or sensitivities of four different stocks and the S&P 500 to each of the three Fama-French factors:
The table below shows the estimated factor loadings or sensitivities of four different stocks and the S&P 500 to each of the three Fama-French factors: 1) Market Premium; 2) Small Minus Big Cap Premium; and 3) High Book to Market Value Premium; or MktPrem; SMB; and HML, respectively. That is, for each firm's stock, the table gives the coefficients or values from the regression: fi= re + B1;MktPrem + B2;SMB + B3;HML + errori. Assume that the risk-free rate is 0.2% per month.| Tupperware Brands Deere & Vertex 1 1 Companya Pharmaceuticals Campbellsa S&P 5000 1a 2.890 1.6110 0.86330 -0.20250 10 20 0.03690 0.47630 0.26490 -0.12210 og 0.53840 2.31340 0.03750 -0.18420 00 a. Construct a portfolio comprised of these four individual stocks and worth exactly 100% of your wealth that has zero systematic risk from each Fama-French factor. What is the expected annual return on this portfolio?| b. From Kenneth French's site, the annualized actual values of the three factors listed above for the most recent three months (Sep-Nov) are: MktPrem 4.95%; SMB = -1.90; and HML = 4.93. Recognizing these as annualized factors, what rate of return should each of the four individual stocks earned over the September through November period?| c. On 1 September of this year, a share of Vertex Pharmaceuticals sold for $197.14, while on 1 December it was selling for $205. Evaluate this performance given that the S&P 500 rose from 4513.04 to 4524.09 over this same time period. | The table below shows the estimated factor loadings or sensitivities of four different stocks and the S&P 500 to each of the three Fama-French factors: 1) Market Premium; 2) Small Minus Big Cap Premium; and 3) High Book to Market Value Premium; or MktPrem; SMB; and HML, respectively. That is, for each firm's stock, the table gives the coefficients or values from the regression: fi= re + B1;MktPrem + B2;SMB + B3;HML + errori. Assume that the risk-free rate is 0.2% per month.| Tupperware Brands Deere & Vertex 1 1 Companya Pharmaceuticals Campbellsa S&P 5000 1a 2.890 1.6110 0.86330 -0.20250 10 20 0.03690 0.47630 0.26490 -0.12210 og 0.53840 2.31340 0.03750 -0.18420 00 a. Construct a portfolio comprised of these four individual stocks and worth exactly 100% of your wealth that has zero systematic risk from each Fama-French factor. What is the expected annual return on this portfolio?| b. From Kenneth French's site, the annualized actual values of the three factors listed above for the most recent three months (Sep-Nov) are: MktPrem 4.95%; SMB = -1.90; and HML = 4.93. Recognizing these as annualized factors, what rate of return should each of the four individual stocks earned over the September through November period?| c. On 1 September of this year, a share of Vertex Pharmaceuticals sold for $197.14, while on 1 December it was selling for $205. Evaluate this performance given that the S&P 500 rose from 4513.04 to 4524.09 over this same time period. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started