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    Abnormal rate of return; systematic risk measure

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    USE THE FOLLOWING INFORMATION FOR THE NEXT FOUR PROBLEMS

    Stock Rit Rmt ai Beta
    A 10.6 15 0 0.8
    Z 9.8 8.0 0 1.1

    Rit = return for stock i during period t
    Rmt = return for the aggregate market during period t

    1. What is the abnormal rate of return for Stock A during period t using only the aggregate market return (ignore differential systematic risk)?

    2. What is the abnormal rate of return for Stock Z during period t using only the aggregate market return (ignore differential systematic risk)?

    3. What is the abnormal rate of return for Stock A when you consider its systematic risk measure (beta)?

    4. What is the abnormal rate of return for Stock Z when you consider its systematic risk measure (beta)?

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    Solution Preview

    1. What is the abnormal rate of return for Stock A during period t using only the aggregate market return (ignore differential systematic risk)?

    Abnormal return = Rit - Rmt = ...

    Solution Summary

    The solution explains how to calculate the abnormal rate of return and systematic risk measure

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