Exhibit 6.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array} { c c c c c }
\text { Stock } & \mathbf { R } _ { \text {it } } & \mathbf { R } _ { \text {mt } } & \mathbf { a } _ { \mathbf { i } } & \text { Beta } \
\hline \mathrm { A } & 10.3 & 12 & 0 & 0.6 \
\mathrm {~B} & 9.4 & 9.0 & 0 & 1.2
\end{array}$$ R it = return for stock i during period t
R mt = return for the aggregate market during period t
-Refer to Exhibit 6.4. What is the abnormal rate of return for Stock B during period t using only the aggregate market return (ignore differential systematic risk)?
A)0.40
B)1.40
C)-1.10
D)-4.40
E)-6.40

Question

Exhibit 6.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array} { c c c c c } 
\text { Stock } & \mathbf { R } _ { \text {it } } & \mathbf { R } _ { \text {mt } } & \mathbf { a } _ { \mathbf { i } } & \text { Beta } \
\hline \mathrm { A } & 10.3 & 12 & 0 & 0.6 \
\mathrm {~B} & 9.4 & 9.0 & 0 & 1.2
\end{array}$$ R it = return for stock i during period t
R mt = return for the aggregate market during period t
-Refer to Exhibit 6.4. What is the abnormal rate of return for Stock B during period t using only the aggregate market return (ignore differential systematic risk)?
A)0.40
B)1.40
C)-1.10
D)-4.40
E)-6.40

Quizplus · Accepted Answer

The abnormal rate of return is the difference between the actual return and the expected return. The expected return is the return that would be expected if the stock had the same beta as the aggregate market. In this case, the beta of the aggregate market is 1.0, so the expected return for Stock B is 9.0%. The actual return for Stock B is 9.4%, so the abnormal rate of return is 9.4% - 9.0% = 0.4%.

Exhibit 64 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Exhibit 64
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)