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The most popular factor model in finance is probably the Fama-French 3 factor model which can be implemented using a linear regressions of the following form: ri = a + b*(MRP) + b*(SMB) + b*(HML) + e Please explain what each factor captures and why you think it is included in the model. Please explain how to construct the SMB and HML factors. Suppose you want to add a fourth factor, the liquidity factor (LIQ), to the model above. Do you think this would be a good factor to include? How would you construct the liquidity factor? Now suppose you want to back test a trading strategy and you want to ensure you are compensated for all of the risks of the three factor model, plus LIQ. How would you determine if your trading strategy is providing you with a positive risk adjusted return?
Which one of these parties is most apt to prefer a stock with a low-dividend payout policy?
A7X Corp. just paid a dividend of $1.60 per share. The dividends are expected to grow at 19 percent for the next eight years and then level off to a growth rate of 5 percent indefinitely. If the required return is 14 percent, what is the price of the..
what is the degree of total (combined) leverage of Haunted Forest, Inc.?
ABC company had net income of $106327 of which 40 percent was distributed to the shareholders as dividends. What is the cash flow to stockholders?
Compare the various forms of business ownership as found in our textbook--Chapter 5. What are the advantages and disadvantages of each form? Which one would be best for a small business, or one intending to increase in size? What advice would you off..
We Cheat U Loans offer to loan you $6,000 at 6% simple interest for a five-year period. In order to make it easier for you to pay, they take each year’s interest of $360 and add it to the $6,000 principal to get $7,800 ($6,000 + 5 x $360).
Wheeler Corporation had retained earnings as of 12/31/10 of $15 million. During 2011, Wheeler's net income was $7 million. The retained earnings balance at the end of 2011 was equal to $20 million.
A retirement plan guarantees that you pay to your estate a fixed amount per year for 20 years. at the time of retirement you will have 470,000$ to your credit in the plan. The plan anticipates earning 6% interest during the period of time you are rec..
Suppose you purchase five put contracts on Test burger Co. The strike price is $45, and the premium is $3. If, at expiration, the stock is selling for $39 per share, what are your put options worth? What's your net profit?
The Black Bird Company plans an expansion. The expansion is to be financed by selling $89 million in new debt and $19 million in new common stock.
Interest rates on 4-year Treasury securities are currently 6.6%, while 6-year Treasury securities yield 7.3%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate..
Why are large portfolios less risky than individual stocks? What is the fund’s overall, or weighted average, beta? What is the expected return of AEP stock?
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