Computing abnormal rates of return

Question 1

Compute the abnormal rates of return for the following stocks during period t (ignore differential systematic risk):

Don't use plagiarized sources. Get Your Custom Essay on
Need an answer from similar question? You have just landed to the most confidential, trustful essay writing service to order the paper from.
Just from $11/Page
Order Now

Stock                             Rit                            Rmt

B                                  11.5%                        4.0%

F                                   10.0                           8.5

T                                   14.0                           9.6

C                                   12.0                          15.3

E                                    15.9                          12.4

Rit = Return for stock i during period t

Rmt = Return for the aggregate market during period t



Compute the abnormal rates of return for the five stocks in Problem 1 assuming the following systematic risk measures (betas):

STOCKS                          βi

B                                    0.95

F                                    1.25

T                                    1.45

C                                    0.70

E                                   -0.30


Compare the abnormal returns in Problems 1 and 2 and discuss the reason for the difference in each case.