What is the abnormal rate of return for stock


Problem:

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

Question 1. What is the abnormal rate of return for Stock A during period t using only the aggregate market return (ignore differential systematic risk)?

Question 2. What is the abnormal rate of return for Stock Z during period t using only the aggregate market return (ignore differential systematic risk)?

Question 3. What is the abnormal rate of return for Stock A when you consider its systematic risk measure (beta)?

Question 4. What is the abnormal rate of return for Stock Z when you consider its systematic risk measure (beta)?

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Finance Basics: What is the abnormal rate of return for stock
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