Question

In: Finance

Compute the abnormal rates of return for the following stocks assuming the following systematic risk measures (betas):

Stock	Rit		Rmt		βi
B	11.5	%	5.3	%	0.90
F	9.4		6.9		1.15
T	15.3		8.3		1.50
C	12.7		14.6		0.75
E	16.5		11.4		-0.25

Rit = return for stock i during period t

R_mt = return for the aggregate market during period t
β_i = beta for stock i

Use a minus sign to enter negative values, if any. Round your answers to one decimal place.

AR_Bt: %

AR_Ft: %

AR_Tt: %

AR_Ct: %

AR_Et: %

Expert Solution

Solution:

Calculation of abnormal rate of return:

ARit=Rit-β_i(Rmt)

AR_Bt=11.5%-(0.90*5.3%)

=6.73%

AR_Ft=9.4%-(1.15*6.9%)

=1.465%

AR_Tt=15.3%-(1.5*8.3%)

=2.85%

AR_Ct=12.7%-(0.75*14.6%)

=1.75%

AR_Et=16.5%-(-0.25*11.4%)

=19.35%

jeff jeffy answered 2 years ago

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