Problem 1: Compute the abnormal rates of return for the following stocks during period t (ignore differential systematic risk):
Stock Rit Rmt
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
Problem 2: Compute the abnormal rates of return for the five stocks in Problem 1 assuming the following systematic risk measures (betas):
Stock Beta
B 0.95
F 1.25
T 1.45
C 0.70
E -0.30
Problem 3: Compare the abnormal rates of return in Problems 1&2 and discuss the reason for the difference in each case.