USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 40

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t
-Refer to Exhibit 5.6. What is the abnormal rate of return for Stock A during period t using only the aggregate market return (ignore differential systematic risk) ?

• A) -2.3 percent
• B) -0.3 percent
• C) 0.3 percent
• D) 2.3 percent
• E) 3.0 percent

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Definitions:

Correlation

A numerical indicator that demonstrates how two variables move in relation to each other, showing both the intensity and the orientation of their link.

Indices

Market indicators or benchmarks that track the performance of a specific basket of assets or group of stocks, representing a specific sector, market, or economy.

DJIA

The Dow Jones Industrial Average, a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States.

Stock Index Futures

Futures contracts where the underlying asset is a stock index, allowing investors to speculate on the future value of the index.