Question

The following table shows the sensitivity of four stocks to the three Fama-French factors. Assume the interest rate is 5%, the expected risk premium on the market is 8%, the expected risk premium on the size factor is 3.8%, and the expected risk premium on the book-to-market factor is 3.7%. Market Size Book-to-market Ford 1.44 -0.27 0.66 Walmart 0.94 -0.36 -0.27 Citigroup 1.25 -0.52 1.05 Apple 1.45 -0.65 -1.08 Calculate the expected return on each stock. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Expected return Ford Walmart Citigroup Apple

Answer 1

1.
=5%+1.44*8%-0.27*3.8%+0.66*3.7%
=17.94%

2.
=5%+0.94*8%-0.36*3.8%-0.27*3.7%
=10.15%

3.
=5%+1.25*8%-0.52*3.8%+1.05*3.7%
=16.91%

4.
=5%+1.45*8%-0.65*3.8%-1.08*3.7%
=10.13%