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