If the abnormal return for a stock during the first week is +5 percent and +3 percent during the second week, what is the abnormal return for the two-week period?
A)5 percent
B)3 percent
C)8.15 percent
D)8 percent

Question

Quizplus · Accepted Answer

To calculate the abnormal return for the two-week period, we need to add the abnormal returns for both weeks: +5% + 3% = 8%. However, this is not the final answer. We need to calculate the compounded return to get the actual abnormal return for the two-week period. Using the formula (1 + r1) x (1 + r2) - 1, where r1 and r2 are the abnormal returns for the first and second week respectively, we get (1 + 0.05) x (1 + 0.03) - 1 = 0.0815 or 8.15%. Therefore, the abnormal return for the two-week period is 8.15%.

If the Abnormal Return for a Stock During the First