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A very large number of factor models has been suggested in the literature. Bas...
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A very large number of factor models has been suggested in the literature. Based on the information below for a company, and given that the risk-free rate of return is 3.2 per cent, compute the return in per cent suggested by the Fama-French three-factor model (FF3, 1993).
| Factor | Factor loading | Return |
|---|---|---|
| Market raw return | 0.5 | 6.2% |
| Size | 0.7 | 2.8% |
| Value | -0.2 | 3.1% |
| Profitability | 0.5 | 1.4% |
| Investment | 0.8 | 1.7% |
| Momentum | 0.5 | 3.2% |
Instructions:
- The answer is given in per cent using one decimal place. This means that a return of, say, 10.1 per cent, is expressed as 10.1. Do not add anything else, not even the "%" sign.
Should
there be intermediate steps in your calculations, please remember to
keep a large number of decimal places in all intermediate calculations,
as the final answer needs to be exact.
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