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Abnormal rate of return; systematic risk measure

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)?

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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