If the abnormal return for a stock during the first week is +5% and during the second week is +3%, what is the abnormal return for the two-week period?
A) 5%
B) 3%
C) 8.15%
D) None of the above

Question

Quizplus · Accepted Answer

To find the abnormal return for the entire two-week period, we need to calculate the cumulative abnormal return (CAR). CAR is calculated by adding the abnormal returns of each week. In this case, CAR = 5% + 3% = 8%. However, we need to convert this to a percentage relative to the starting price. To do this, we use the formula (1 + CAR/100) * (1 + CAR/100) - 1. Plugging in the numbers, we get (1 + 8/100) * (1 + 8/100) - 1 = 0.0815, which is 8.15%. Therefore, the abnormal return for the two-week period is 8.15%.

If the Abnormal Return for a Stock During the First