Exhibit 5-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 3

Multiple Choice

Exhibit 5-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\mathrm{mt}} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \\\hline \text { C } & 12 & 10 & 0 & 0.8 \\\mathrm{E} & 10 & 8.0 & 0 & 1.1\end{array}$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t
-Refer to Exhibit 5-1. What is the abnormal rate of return for Stock C when you consider its systematic risk measure (beta) ?

• A) 4.0%
• B) 1.2%
• C) 2.0%
• D) -1.05%
• E) -8.5%

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Definitions:

Degree of Operating Leverage

A financial metric that measures the sensitivity of a company's operating income to its sales volume.

Margin of Safety

The amount by which sales can drop before reaching the break-even point, typically expressed as a percentage of current sales.

Sales

The total revenue generated from goods or services sold by a company.

Net Operating Income

Revenue derived from the principal activities of a business before interest and taxes are subtracted.