Suppose that you investigate the returns on a portfolio of stocks with a low B/M...
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Suppose that you investigate the returns on a portfolio of stocks with a low B/M (book-to-market). The average annualized return on the portfolio is 8% and the riskless rate is 2%. In regressions of the portfolio excess return on factors, you obtain the following coefficients on factors: where MKT, SMB, and HML are the factors in the Fama-French 3-factor model. The average factor returns in this period is 6% for MKT, 5% for SML, and 4% for HML. What are the alphas of the portfolio return based on CAPM and the Fama-French 3-factor model, respectively? A. 9.32% and 4.56% B. 5.97% and 2.45% C. 3.42% and 3.50% D. 2.13% and 4.66%
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