Delta Co. announced its merger plans on February 6 and had a daily return of 0.6 percent. Edwards Co. announced its merger plans on February 8 and had a daily return of 0.7 percent. Francis Co. announced its merger plans on February 7 and had a daily return of 0.4 percent. The daily market return for February 6^th through the 8^th was 0.2, 0.5, and -0.1, respectively. What is the combined cumulative abnormal return for the announcement date? A) 0.8 percent B) 0.9 percent C) 1.0 percent D) 1.1 percent E) 1.2 percent

Question

Quizplus · Accepted Answer

To calculate the cumulative abnormal return (CAR) for each company, we need to subtract the market return from the daily return on the announcement date:

Delta Co. CAR = 0.6% - 0.2% = 0.4%
Edwards Co. CAR = 0.7% - 0.5% = 0.2%
Francis Co. CAR = 0.4% - (-0.1%) = 0.5%

To get the combined CAR for the announcement date, we simply add up the CARs for each company:

CAR = 0.4% + 0.2% + 0.5% = 1.1%

Therefore, the correct answer is (D) 1.1 percent.

Delta Co Announced Its Merger Plans on February 6 and Had