According to the CAPM model, the risk premium for Stock A is 7.9% and the...
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According to the CAPM model, the risk premium for Stock A is 7.9% and the risk premium for Stock B is 17.9%. The table below provides the following information for the FFC factors SMB, HML, and PR1YR: The expected return, the beta of Stock A with the factor, and the beta of Stock B with the factor. A portfolio is created by investing equally in Stock A and Stock B. Use the FFC model to estimate the risk premium for this portfolio. Factor Expected Return Beta for A Beta for B SMB 5.1% -0.35 0.25 HML 8.3% 0.35 -0.20 PR1YR 11.1% -0.10 0.55 15.13% 13.24% 13.87% 14.50% 15.77%
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