Which of the following is a three-factor pricing model that uses a market factor, the market value of a firm's common equity, and the ratio of a firm's book equity value to its market value of equity to relate expected returns to risk?
A) Fama-French model
B) Arbitrage pricing theory
C) Capital asset pricing model
D) Capital planning asset model

Question

Quizplus · Accepted Answer

The Fama-French model is a three-factor pricing model that expands on the Capital Asset Pricing Model (CAPM) by adding size risk (small minus big) and value risk (high book-to-market minus low) to the market risk factor. This model uses the market factor, the market value of a firm's common equity, and the ratio of a firm's book equity value to its market value of equity to relate expected returns to risk.

Which of the Following Is a Three-Factor Pricing Model That