Using the factor beta estimates in Table 1 shown here, and the expected return estimates in Table 2 shown here, , calculate the risk premium of General Electric stock (ticker: GE) using the FFC factor specification. (Annualize your result by multiplying by 12.) GE'S CAPM beta over the same time period was 1.44. How does the risk premium compare with the risk premium you would estimate from the CAPM? The monthly risk premium of General Electric stock is %. (Round to three decimal places.) The annual risk premium of General Electric stock is %. (Round to two decimal places.) GE'S CAPM beta over the same time period was 1.44. How does the risk premium compare with the risk premium you would estimate from the CAPM? The annual risk premium produced by the CAPM beta is %. (Round to two decimal places.) How does the risk premium compare with the risk premium you would estimate from the CAPM? (Select from the drop-down menu.) The annual risk premium produced by the CAPM beta is than the annual risk premium of General Electric stock. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Factor MKT SMB HML PR1YR Table 1: Estimated Factor Betas, 2005-2015 MSFT XOM 1.06 0.78 -0.45 -0.62 -0.12 0.21 -0.06 0.32 GE 1.31 -0.43 0.81 -0.23 (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Table 2: FFC Portfolio Average Monthly Returns, 1927-2015 Factor Portfolio Average Monthly Return (%) 95% Confidence Band (%) MKT-IT 0.63 +0.33 SMB 0.21 + 0.19 HML 0.42 +0.21 PR1YR 0.65 +0.29 Using the factor beta estimates in Table 1 shown here, and the expected return estimates in Table 2 shown here, , calculate the risk premium of General Electric stock (ticker: GE) using the FFC factor specification. (Annualize your result by multiplying by 12.) GE'S CAPM beta over the same time period was 1.44. How does the risk premium compare with the risk premium you would estimate from the CAPM? The monthly risk premium of General Electric stock is %. (Round to three decimal places.) The annual risk premium of General Electric stock is %. (Round to two decimal places.) GE'S CAPM beta over the same time period was 1.44. How does the risk premium compare with the risk premium you would estimate from the CAPM? The annual risk premium produced by the CAPM beta is %. (Round to two decimal places.) How does the risk premium compare with the risk premium you would estimate from the CAPM? (Select from the drop-down menu.) The annual risk premium produced by the CAPM beta is than the annual risk premium of General Electric stock. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Factor MKT SMB HML PR1YR Table 1: Estimated Factor Betas, 2005-2015 MSFT XOM 1.06 0.78 -0.45 -0.62 -0.12 0.21 -0.06 0.32 GE 1.31 -0.43 0.81 -0.23 (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Table 2: FFC Portfolio Average Monthly Returns, 1927-2015 Factor Portfolio Average Monthly Return (%) 95% Confidence Band (%) MKT-IT 0.63 +0.33 SMB 0.21 + 0.19 HML 0.42 +0.21 PR1YR 0.65 +0.29
