USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
R it = return for stock i during period t
R mt = return for the aggregate market during period t
-Refer to Exhibit 5.6. Stock X had an actual return of 14 percent, and Stock X's normal return based on the market's return for the same period was 13.6 percent. What is Stock X's abnormal rate of return?
A) -0.4 percent
B) 0.1 percent
C) 0.4 percent
D) 4.0 percent
E) 6.4 percent

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  R it = return for stock i during period t
R mt = return for the aggregate market during period t
-Refer to Exhibit 5.6. Stock X had an actual return of 14 percent, and Stock X's normal return based on the market's return for the same period was 13.6 percent. What is Stock X's abnormal rate of return?
A) -0.4 percent 
B) 0.1 percent 
C) 0.4 percent 
D) 4.0 percent 
E) 6.4 percent

Quizplus · Accepted Answer

Abnormal rate of return = actual return - normal return 
= 14% - 13.6% 
= 0.4% 
Therefore, the abnormal rate of return for Stock X is 0.4 percent, which corresponds to choice C.