Exhibit 6.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array} { c c c c c }
\text { Stock } & \mathbf { R } _ { \text {it } } & \mathbf { R } _ { \text {mt } } & \mathbf { a } _ { \mathbf { i } } & \text { Beta } \
\hline \mathrm { ABC } & 11.5 & 13.0 & 0 & 0.7 \
\mathrm { XYZ } & 9.0 & 7.0 & 0 & 1.1
\end{array}$$ R it = return for stock i during period t
R mt = return for the aggregate market during period t
-Refer to Exhibit 6.2. What is the abnormal rate of return for Stock ABC when you consider its systematic risk measure (beta)?
A)2.4%
B)1.5%
C)-1.5%
D)2.0%
E)-3.2%

Question

Exhibit 6.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array} { c c c c c } 
\text { Stock } & \mathbf { R } _ { \text {it } } & \mathbf { R } _ { \text {mt } } & \mathbf { a } _ { \mathbf { i } } & \text { Beta } \
\hline \mathrm { ABC } & 11.5 & 13.0 & 0 & 0.7 \
\mathrm { XYZ } & 9.0 & 7.0 & 0 & 1.1
\end{array}$$ R it = return for stock i during period t
R mt = return for the aggregate market during period t
-Refer to Exhibit 6.2. What is the abnormal rate of return for Stock ABC when you consider its systematic risk measure (beta)?
A)2.4%
B)1.5%
C)-1.5%
D)2.0%
E)-3.2%

Quizplus · Accepted Answer

The abnormal rate of return is the difference between the actual return and the expected return. The expected return is calculated using the Capital Asset Pricing Model (CAPM), which is:Expected return = Risk-free rate + Beta * (Market return - Risk-free rate)In this case, the risk-free rate is not given, so we will assume it is 0%. The market return is 13.0%. The beta for Stock ABC is 0.7.Therefore, the expected return for Stock ABC is:Expected return = 0% + 0.7 * (13.0% - 0%) = 9.1%The actual return for Stock ABC is 11.5%.Therefore, the abnormal rate of return for Stock ABC is:Abnormal return = Actual return - Expected return = 11.5% - 9.1% = 2.4%

Exhibit 62 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Exhibit 62
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)