Exhibit 5-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $$\begin{array} { l c c c c }
\text { Stack } & R _ { \text {in } } & R _ { \text {mi } } & a _ { i } & \text { Beta } \
\hline \text { Elliat } & 9.9 & 15.0 & 0 & 0.8 \
\text { Hemlick } & 9.1 & 8.0 & 0 & 1.1
\end{array}$$
R it = return for stock i during period t
R mt = return for the aggregate market during period t
-Refer to Exhibit 5-3. What is the abnormal rate of return for Hemlick when you consider its systematic risk measure (beta)?
A) 0.1%
B) 0.3%
C) 0.5%
D) 1.5%
E) 3.0%

Question

Exhibit 5-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $$\begin{array} { l c c c c } 
\text { Stack } & R _ { \text {in } } & R _ { \text {mi } } & a _ { i } & \text { Beta } \
\hline \text { Elliat } & 9.9 & 15.0 & 0 & 0.8 \
\text { Hemlick } & 9.1 & 8.0 & 0 & 1.1
\end{array}$$ 
R it = return for stock i during period t
R mt = return for the aggregate market during period t
-Refer to Exhibit 5-3. What is the abnormal rate of return for Hemlick when you consider its systematic risk measure (beta)?
A) 0.1%
B) 0.3%
C) 0.5%
D) 1.5%
E) 3.0%

Quizplus · Accepted Answer

The abnormal rate of return is calculated as the actual return minus the expected return based on the market return and the stock's beta. For Hemlick, the expected return is 8.0% (market return) * 1.1 (beta) = 8.8%. The actual return is 9.1%. Therefore, the abnormal return is 9.1% - 8.8% = 0.3%.

Exhibit 5-3 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

Exhibit 5-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)