1.
Compute the abnormal rates of return for the following stocks during period
t
(ignore dif-
ferential systematic risk):
Stock
R
it
R
mt
B
11.5% 4.0%
F
10.0 8.5
T
14.0 9.6
C
12.0 15.3
E
15.9 12.4
R
it
=
return for stock
i
during period
t
R
mt
=
return for the aggregate market during period
t
2.
Compute the abnormal rates of return for the five stocks in Problem 1 assuming the fol-
lowing systematic risk measures (betas):
Stock
β
i
B
0.95
F
1.25
T
1.45
C
0.70
E
−
0.30
3.
Compare the abnormal returns in Problems 1 and 2 and discuss the reason for the differ-
ence in each case.
Chapter 6:
Efficient Capital Markets
179