Question

An index model regression applied to past monthly returns in Ford's stock price produces the following estimates, which are believed to be stable over time: rf = 0.10% + 1.1rm If the market index subsequently rises by 8% and Ford's stock price rises by 7%, what is the abnormal change in Ford's stock price? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 1 decimal place.) Abnormal return

In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was ra= 3.1%. The rate of return on Bpex was only r8 = 2.5%. The market today responded to very encouraging news about the unemployment rate, and ru= 3%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: Apex: ra = 0.2% + 1.4rm Bpex: rb = -0.1% + 0.6rm a. What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Predicted Returns Apex Bpex

Answer 1

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ke - Microsoft Excel (Product Activation Failed) Add-Ins File Home Insert Page Layout Formulas Data Review View - 2x % Cut Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Cells AT AU AV AW AX 269 Calibri -11AA = = = Dr Wrap Text General E Copy Paste B I U B- SF A Format Painter Merge Merge & Center - Center $ -% % 4:0 .00 . Clipboard Font Alignment Number A0280 - for ALAMAN I AO AP AQ AR AS 268 CALCULATION OF ABNORMAL RETURN 270 M = 8% 271 272 FORECASTED MONTHLY RETURN = 0.1% + 1.1(Rm) 273 FORECASTED MONTHLY RETURN = 0.1% + 1.1(8%) = 8.90% 274 275 ACTUAL RETURN WAS 7% 276 277 SO ABNORMAL RETURN = ACTUAL RETURN - FORECASTED RETURN 278 ABNORMAL RETURN = 7%-8.90% = -1.9000% 279 280 ANSWER : -1.9 281 282 283 284 285 286 HON KE CAPM UTILITY, SHARPE, beta convexity DGM betaport future INDEX INTL CAP BUD SANDRINE Red ferences: AG470 LEASING PV, FV, ANNUITY DIR right clean RI O _+ 0 YIELD bond portfolio WACC BOJ 130% - 9 * ENG D.ER 01-12-2019)

- 2x ke - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri 11 A A = = = V Wrap Text General Ea Copy Paste B I U B- E A E E s FMerce Merge & Center - Center Format Painter $ -% % 4.0 .00 . Conditional Format Formatting as Table Clipboard Font Alignment Number Styles FN31 fix FJFK FLFM Insert Delete Format Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Cells EM EN FOFPFQTFR FS FT 19 20 21 22 23 24 25 rate of return on Apex 3.10% Bpex 2.50% 26 (a) predicted return 27 28 Apex : rA = 0.2% +1.4Rm = 0.2% +1.4(3%) = Bpex = r B = -0.1% +0.6Rm = -0.1% +0.6(3%) = 4.40% 1.70% 29 30 31 32 33 34 35 36 HON Rea convexity DGM betaport future INDEX INTL CAP BUD SANDRINE LEASING PV, FV, ANNUITY DIR right clean WACC KE CAPM UTILITY, SHARPE, beta ferences: AG470 YIELD bond portfolio BO. 130% 9 * RI O 40-_+ DOER ENG 01-12-2019)