Three-Factor Model: Systematic Risk

Related BrainMass Solutions

• What financial concept or principle is the problem asking to solve and is there any additional information missing from this problem that would enhance the decision-making process?

  41358 Stock Question Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those three factors is presented in the following chart.

• Factor model for stock returns

  Total return = Expected Return + Systematic Risk + Unsystematic risk Total Return = 10.5%+0.71%+1.8%=13.01% This solution provides a factor model for stock returns.

• Factor Models: Systematic Risk of the Stock

  451211 Factor Models: Systematic Risk of the Stock see attachment 3. Factor Models. Suppose a factor model is appropriate to describe the returns on a stock. The current expected return on the stock is 10.5 percent.

• Arbitrage Pricing Theory (APT)

  128312 APT/RISK Suppose a factor model is appropriate to describe the returns on a stock. Information about those factors is presented in the following chart.

• Factors Models and Return on a Stock

  What is the unsystematic risk of the stock ? c. What is the total return on this stock ? Please see the attachment. The solution explains the calculation of systematic risk, unsystematic risk and total return using the factor model.

• Factors Models and Market Models

  The following table shows the information for two diversified portfolios: (see attached file for chart) If the risk-free rate is 6 percent, what are the risk premiums for each factor in this model? 6.

• Introduction to Capital Market Line

  Other financial research, such as the Fama And French Three Factor Model, reveals that assets' returns can be better explained by factors such as capitalization and book value-stock price ratio, than only the systematic risks itself.

• CAPM and Fama French Model

  (b)  Try to fit the 3-factor Fama and French model.  

• SML and CML

  So, this is a single-factor model where the single-factor is sensitivity, as measured by beta, to the equity risk premium (ERP). ERP is also called the price of risk; beta is also called the quantity of risk.