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You will see data and Fama-French (FF) factor exposures for 39 US companies. These exposures were computed by regressing company excess returns upon the FF factor returns. The label hi is the sensitivity of the given stock to HML, si is the sensitivity to SMB, and bi is the sensitivity to broad market excess returns (the sensitivities are factor loadings. We think of them as betas, as an extension of the concept of beta to factors other than the market excess return.) For ease of navigation, the monthly data have been put in outline view, but can be viewed by clicking on the plus sign at the top of the spreadsheet. Average monthly returns and the standard deviation of monthly returns are also provided for each of the 39 stocks and an equally-weighted portfolio of these stocks (labeled EW Port). The FF factor sensitivities of the EW portfolio are also provided.You have learned that equally-weighted portfolios can have nice properties relative to market capitalization weighted benchmarks, but you think you can use the three FF factors to build a better portfolio that the equally-weighted one. You are guided by the intuition that good portfoliosa) have positive exposure to all three factors because, on average over time, all 3 factors earn positive returns.b) are risk-efficient. That is, residual risk is as small as possible while maintaining the desired factor exposures.Use the data and the factor-model methodology discussed in class to build the best possible portfolio that has the following properties:? Its factor sensitivity to HML is at least 0.48 (in this regard, it is similar to the EW Port).? Its factor sensitivity to SMB is at least 0.02. These are all large companies, so your aspirations with respect to this factor are modest, but you want some positive exposure.? Its factor sensitivity to the broad market is equal to 1.? It is risk-efficient.Describe this portfolio by showing the weights of the individual securities in the space provided. Assume no short positions are allowed. Also, state the standard deviation of this portfolio



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