Exhibit 5-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 22

Multiple Choice

Exhibit 5-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{lcccc}\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\text {mt }} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \\\hline \text { ABC } & 11.5 & 13.0 & 0 & 0.7 \\\text { XYZ } & 9.0 & 7.0 & 0 & 1.1\end{array}$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t
-Refer to Exhibit 5-2. What is the abnormal rate of return for Stock ABC when you consider its systematic risk measure (beta) ?

• A) 2.4%
• B) 1.5%
• C) -1.5%
• D) 2.0%
• E) -3.2%

---

Definitions:

Fixed Expenses

Costs that do not fluctuate with changes in production level or sales volume, such as leases and insurance premiums.

Contribution Margin

The amount by which the sale of a product exceeds its variable costs, contributing towards covering fixed costs and generating profit.

Return On Investment (ROI)

A financial metric used to evaluate the efficiency or profitability of an investment, calculated by dividing the benefit (return) of an investment by the cost of the investment.

Net Operating Income

The total profit of a business after operating expenses are deducted but before taxes and interest are calculated.