Question

Stock Rit Rmt ai Beta

A 10.6 15     0 0.8
Z  9.8 8 0 1.1

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

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

a. 3.40
b. 4.40
c. 1.80
d. -4.40

E.
-1.70

Answer 1

1.8 option c

Step-by-step explanation:

this question has a very simple solution

the following definitions

Rit = return for stock i during period t

Rmt = return for the aggregate market during period t

The abnormal rate of return for stock z is = Rit - Rmt

Rit = 9.8

Rmt = 8

9.8 - 8 = 1.8

therefore the abnormal rte of return for stock z is = 1.8, which is option c