The estimated factor sensitivities of TerraNova Energy to Fama-French factors and the risk premia associated with those factors are given in the following table:
market factor- factor sensitivity(1.2) risk premium (4.5);
size factor- factor sensitivity(-.5), risk premium(2.7);
value factor- factor sensitivity(-.15), risk premium(4.3).
A. Based on the fama-french model, calculate the required return for terranova energy using these estimates. Assume that the treasury bill rate is 4.7%.
B. Describe the expected style characteristics of terranova based on its factor sensitivities.