Deck 5: Efficient Capital Markets

Question 1

When considering markets in Europe, it is inappropriate to assume a level of efficiency similar to that for Canadian markets.

Answer 1

False

Question 2

The strong form of the efficient market hypothesis contends that only insiders can earn abnormal returns.

Answer 2

False

Question 3

Even when fees and costs are considered most mutual fund managers outperform the aggregate market.

Answer 3

False

Question 4

Studies examining stock splits support the semi-strong form efficient market hypothesis.

Question 5

Results from studies on the effects of unexpected world events have consistently indicated that the price change is so rapid, that it takes place between the close of one day and the opening of the next day.

Question 6

An efficient market requires a large number of profit-maximizing investors.

Question 7

Technical analysis and the efficient market hypothesis have a consistent set of assumptions concerning stock market behaviour.

Question 8

There is little evidence from studies examining initial public offerings (IPOs) that suggest markets are semi-strong form efficient.

Question 9

In his original article, Fama divided the efficient market hypothesis into two subhypotheses.

Question 10

If the efficient market hypothesis is true price changes are independent and biased.

Question 11

In tests of the semi-strong form EMH, it is not necessary to use risk-adjusted rates of return.

Question 12

Results of initial public offering (IPOs) studies tend to support the semi-strong EMH, because it appears that prices adjusted rapidly after initial underpricing.

Question 13

Studies concerning quarterly earnings reports indicate that information in quarterly statements is of value and can provide an above-average risk-adjusted return.

Question 14

The weak form of the efficient market hypothesis contends that stock prices fully reflect all public and private information.

Question 15

The weak-form efficient market hypothesis assumes all publicly available information is reflected in current stock prices.

Question 16

Results of studies concerning corporate insider trading indicate that corporate insiders generally enjoy above-average returns.

Question 17

The weak form of the efficient market hypothesis contends that technical trading rules are of little value.

Question 18

The random walk hypothesis contends that stock prices occur randomly.

Question 19

Tests have shown that if small filters are used in simulating trading rules, these trading rules have produced above average returns after transactions costs are factored in.

Question 20

Prices in efficient capital markets fully reflect all available information and rapidly adjust to new information.

Question 21

The performance of four major groups of investors has been studied in connection with tests of the strong-form of the efficient market hypothesis. These include all of the following except

A) Professional money managers.
B) Stock exchange specialists.
C) Securities Exchange officers.
D) Security analysts.
E) Corporate insiders.

Question 22

Abnormal returns associated with rankings by a major advisory service are associated with

A) The P/E effect.
B) The Value-Line Enigma.
C) The Value-Line Effect.
D) The Standard and Poor's Anomaly.
E) The rankings anomaly.

Question 23

If statistical tests of stock returns over time support the efficient market hypothesis the resulting correlations should be

A) Positive.
B) Negative.
C) Zero.
D) Lagged.
E) Skewed.

Question 24

Examples of anomalies providing contrary evidence to the semi-strong efficient market hypothesis include studies of all of the following except

A) Quarterly earnings reports.
B) Price earnings ratios.
C) Total market value.
D) Stocks ranked by Canadian Bond Rating Service.
E) The January effect.

Question 25

Which statement is true concerning alternative efficient market hypothesis?

A) The weak hypothesis encompasses the semi-strong hypothesis.
B) The weak hypothesis encompasses the strong hypothesis.
C) The semi-strong hypothesis encompasses the weak hypothesis.
D) The strong hypothesis relates only to public information.
E) All of the above statements are false.

Question 26

A "runs test" on successive stock price changes which supports the efficient market hypothesis would show the actual number of runs

A) Falls into the range expected of a random series.
B) Falls into the range expected of a dependent series.
C) Is small.
D) Is large.
E) Would approximate N/2.

Question 27

The strongest explanations for the size anomaly are

A) risk measurements
B) higher transaction costs
C) P/E ratio
D) Choices a and b.
E) Choices b and c.

Question 28

Which is not an implication of the EMH?

A) To do superior industry or company analysis you must understand the variables that affect returns and do a superior job of estimating these variables.
B) Aggregate market analysis that involves very detailed analysis of reliable historical economic data should outperform a simple buy-and-hold policy.
C) A superior analyst is one who can consistently select stocks that provide positive abnormal returns on a risk-adjusted basis.
D) If a portfolio manager does not have any superior analysts, he/she should consider investing funds in an index fund.
E) If a portfolio manager has some superior analytical skills, they should be encouraged to concentrate in second tier stocks which have liquidity, but may be neglected.

Question 29

Which of the following has not been involved in a direct test of the semi-strong form of the efficient market hypothesis?

A) Stock splits
B) New Issues
C) Exchange listing
D) Accounting changes
E) Specialists' returns

Question 30

The weak form of the efficient market hypothesis states that

A) Successive price changes are dependent.
B) Successive price changes are independent.
C) Successive price changes are biased.
D) Successive price changes depend on trading volume.
E) Properly specified trading rules are of value.

Question 31

A trading rule which signals purchase of a stock if it rises X percent and sale of a stock if it falls X percent is known as a

A) Breakout.
B) Short sale.
C) Sieve.
D) Filter.
E) Relative strength.

Question 32

Banz and Reinganum found that small firms consistently outperformed large firms. This anomaly is referred to as the

A) Large firm effect.
B) Size effect.
C) Small firm effect.
D) PIE effect.
E) None of the above.

Question 33

A portfolio manager without superior analytical skills should

A) Determine and quantify the risk preferences of a client.
B) Minimize transaction costs.
C) Maintain the specified risk level.
D) Ensure that the portfolio is completely diversified.
E) All of the above.

Question 34

Some studies have attempted to determine whether it is possible to predict future returns for a stock based on publicly available quarterly earnings reports. The results of these studies indicate

A) Stock prices adjust to reflect quarterly earnings reports.
B) Stock prices do not adjust to reflect quarterly earnings reports.
C) Support for the semi-strong EMH.
D) Stock prices adjust if earnings reports are released in January.
E) Stock prices do not adjust if earnings reports are released in January.

Question 35

Superior analysts are encouraged to concentrate their efforts in "middle tier" stocks. This is recommended because

A) it works to minimize taxes for the client.
B) only individuals deal in the middle tier stocks.
C) prices may not adjust quite as rapidly for middle tier stocks as they do in the top tier; therefore, the chances of temporarily undervalued securities are greater.
D) it includes companies too small to be considered by institutions.
E) Technical analysts never look at "middle tier" stocks.

Question 36

The implication of efficient capital markets and a lack of superior analysts have led to the introduction of

A) Balanced funds.
B) Naive funds.
C) January funds.
D) Index funds.
E) Futures options.

Question 37

Fusion investing is the integration of the following elements of investment valuation:

A) Fundamental value and investor sentiment.
B) Fads and fashions.
C) Technical analysis and investor sentiment.
D) Historical prices and returns.
E) Transaction costs and fundamental value.

Question 38

Which of the following would be inconsistent with an efficient market?

A) Information arrives randomly and independently.
B) Stock prices adjust rapidly to new information.
C) Price changes are independent.
D) Price changes are random.
E) Price adjustments are biased.

Question 39

The results of studies that have looked at the relationship between PEG ratios and subsequent stock returns

A) Find an inverse relationship, with annual rebalancing.
B) Find no relationship, with monthly or quarterly rebalancing.
C) Find an inverse relationship, with monthly or quarterly rebalancing.
D) Find a direct relationship, with monthly or quarterly rebalancing.
E) Find an direct relationship with annual rebalancing

Question 40

The opportunity to take advantage of the downward pressure on stock prices that result from end-of-the-year tax selling is known as

A) The End-of-the-Year Effect.
B) The December Anomaly.
C) The End-of-the-Year Anomaly.
D) The January Anomaly.
E) The New Years Anomaly.

Question 41

According to prospect theory

A) Investors have a propensity to sell winners too soon and hang on to losers too long.
B) Investors ignore bad news and overemphasize good news.
C) Investors tend to follow the herd.
D) Investors put more money into a failure rather than into a success.
E) Investors are all noise traders.

Question 42

According to the strong-form efficient market hypothesis, stock prices fully reflect

A) All security market information only.
B) All public information only.
C) All public and private information only.
D) All of the above.
E) None of the above.

Question 43

According to the weak-form efficient market hypothesis, which of the following types of information are fully reflected in stock prices?

A) Rates of return, trading volume, and news about the economy.
B) Dividend and earnings announcements.
C) Rates of return, trading volume, and block trades.
D) Earnings announcements and rates of return.
E) All of the above.

Question 44

In order to confirm the weak-form efficient market hypothesis you could develop trading rules that consider,

A) Advance-decline ratios.
B) Short sales.
C) Specialist activities.
D) Any of the above.
E) None of the above.

Question 45

Autocorrelation and runs tests are used to test the

A) Weak-form efficient market hypothesis (EMH).
B) Semistrong-form efficient market hypothesis (EMH).
C) Strong-form efficient market hypothesis (EMH).
D) Choices a and b
E) All of the above.

Question 46

Behavioural finance differs from the standard model of finance because behavioural finance

A) Precludes the impact of investor psychology.
B) Includes the impact of investor psychology.
C) Accepts the Efficient Markets Hypothesis.
D) Rejects the idea of market anomalies.
E) None of the above.

Question 47

The January anomaly refers to the phenomenon where stock prices

A) Decline in December.
B) Decline in January.
C) Rise in January.
D) Decline in December and rise in January.
E) Rise in December and decline in January.

Question 48

In an event study the objective is to

A) Whether it is possible to predict stock prices.
B) How fast stock prices adjust to news.
C) Examine the cross-sectional distributions of returns.
D) Conduct a time series analysis of returns.
E) Determine normal P/E ratios.

Question 49

Investigators have tested the strong form EMH by examining the performance of the following type of investor

A) Corporate insiders.
B) Stock exchange specialists.
C) Security analysts.
D) Professional money managers.
E) All of the above.

Question 50

Confirmation bias refers to the situation where

A) Investors have a propensity to sell winners too soon and hang on to losers too long.
B) Investors ignore bad news and overemphasize good news.
C) Investors tend to follow the herd.
D) Investors put more money into a failure rather than into a success.
E) Investors are all noise traders.

Question 51

Event studies are used to test the

A) Weak-form efficient market hypothesis (EMH).
B) Semistrong-form efficient market hypothesis (EMH).
C) Strong-form efficient market hypothesis (EMH).
D) Choices b and b
E) All of the above.

Question 52

The results of return prediction studies have found

A) Limited success predicting short-horizon returns.
B) Limited success predicting long-horizon returns.
C) Good success predicting long-horizon returns.
D) Choices a and b.
E) Choices a and c.

Question 53

Researchers have found a positive relationship between default spread and stock returns in the long run because a large default spread implies

A) a high risk premium and higher expected returns.
B) a high risk premium and lower expected returns.
C) a low risk premium and higher expected returns.
D) a low risk premium and lower expected returns.
E) None of the above.

Question 54

Studies of the relationship between P/E ratios and stock returns have found that

A) Low P/E stocks of large cap stocks outperformed low P/E stocks of small cap stocks.
B) Low P/E stocks of small cap stocks outperformed high P/E stocks of large cap stocks.
C) High P/E stocks of large cap stocks outperformed low P/E stocks of small cap stocks.
D) High P/E stocks of large cap stocks outperformed high P/E stocks of small cap stocks.
E) None of the above.

Question 55

Which of the following assumptions imply capital markets will be efficient?

A) A large number of independent profit-maximizing participants analyze securities.
B) New information regarding securities comes to the market in a random fashion.
C) Investors adjust security prices rapidly to reflect the effect of new information.
D) Both b and c only.
E) All of the above are assumptions that imply a market will be efficient.

Question 56

In order to confirm the weak-form efficient market hypothesis, an examination of stock price runs over time would reveal that stock price changes over time were

A) Highly positively correlated.
B) Moderately positively correlated.
C) Highly negatively correlated.
D) Moderately negatively correlated.
E) None of the above.

Question 57

Escalation bias refers to the situation where

A) Investors have a propensity to sell winners too soon and hang on to losers too long.
B) Investors ignore bad news and overemphasize good news.
C) Investors tend to follow the herd.
D) Investors put more money into a failure rather than into a success.
E) Investors are all noise traders.

Question 58

Fama and French examined the relationship between the Book Value to Market Value ratio and average stock returns and found

A) No evidence of a relationship for Canadian stocks.
B) Evidence of a negative relationship in Canadian stocks only.
C) Evidence of a positive relationship for Japanese stocks only.
D) Evidence of a negative relationship for Canadian and Japanese stocks.
E) Evidence of a positive relationship for U.S. and Japanese stocks.

Question 59

In tests of the semi-strong form efficient market hypothesis, an adjustment for market effects is carried out by

A) Calculating the historical return.
B) Calculating the market rate of return.
C) Calculating the abnormal rate of return.
D) Calculating the cross-sectional return.
E) None of the above.

Question 60

According to the semi-strong form efficient market hypothesis, which of the following types of information are fully reflected in stock prices?

A) Rates of return, trading volume, and news about the economy.
B) Dividend and earnings announcements.
C) Rates of return, trading volume, and block trades.
D) Earnings announcements and rates of return.
E) All of the above.

Question 61

Fusion investing refers to the combination of

A) Technical analysis and fundamental analysis.
B) Behavioural analysis and technical analysis.
C) Fundamental analysis and investor sentiment.
D) Technical analysis and investor sentiment.
E) All of the above.

Question 62

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 XYZ when you consider its systematic risk measure (beta)?

A) 2.0%
B) -1.5%
C) 2.4%
D) 1.3%
E) -3.2%

Question 63

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%

Question 64

Exhibit 5-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\mathrm{mt}} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \\\hline \text { C } & 12 & 10 & 0 & 0.8 \\\mathrm{E} & 10 & 8.0 & 0 & 1.1\end{array}$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t

-Refer to Exhibit 5-1. What is the abnormal rate of return for Stock E during period t using only the aggregate market return (ignore differential systematic risk)?

A) 4.0%
B) 2.0%
C) 1.2%
D) -1.05%
E) -8.5%

Question 65

Exhibit 5-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\text {mt }} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \\\hline \mathrm{A} & 10.3 & 12 & 0 & 0.6 \\\text { B } & 9.4 & 9.0 & 0 & 1.2\end{array}$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t

-Refer to Exhibit 5-4. What is the abnormal rate of return for Stock B when you consider its systematic risk measure (beta)?

A) 0.1%
B) -1.4%
C) 0.5%
D) 1.5%
E) 2.0%

Question 66

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 during period t using only the aggregate market return (ignore differential systematic risk)?

A) 3.2%
B) 2.4%
C) 1.3%
D) -1.5%
E) 2.0%

Question 67

Exhibit 5-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\mathrm{mt}} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \\\hline \text { C } & 12 & 10 & 0 & 0.8 \\\mathrm{E} & 10 & 8.0 & 0 & 1.1\end{array}$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t

-Refer to Exhibit 5-1. What is the abnormal rate of return for Stock C during period t using only the aggregate market return (ignore differential systematic risk)?

A) 4.0%
B) 1.2%
C) -1.05%
D) 2.0%
E) -8.50

Question 68

Exhibit 5-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $$\begin{array} { l c c c c } \text { Stack } & R _ { \text {in } } & R _ { \text {mi } } & a _ { i } & \text { Beta } \\\hline \text { Elliat } & 9.9 & 15.0 & 0 & 0.8 \\\text { Hemlick } & 9.1 & 8.0 & 0 & 1.1\end{array}$$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t

-Refer to Exhibit 5-3. What is the abnormal rate of return for Hemlick when you consider its systematic risk measure (beta)?

A) 0.1%
B) 0.3%
C) 0.5%
D) 1.5%
E) 3.0%

Question 69

Exhibit 5-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\text {mt }} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \\\hline \mathrm{A} & 10.3 & 12 & 0 & 0.6 \\\text { B } & 9.4 & 9.0 & 0 & 1.2\end{array}$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t

-Refer to Exhibit 5-4. What is the abnormal rate of return for Stock A during period t using only the aggregate market return (ignore differential systematic risk)?

A) 3.34
B) 1.75
C) -1.75
D) -3.70
E) -1.70

Question 70

Which of the following behaviours is consistent with escalation bias?

A) Buying more of a stock as it increases in value.
B) Buying more of a stock as it decreases in value.
C) Selling a stock as it decreases in value.
D) Selling a stock as it increases in value.
E) Buying or selling a stock as it increases in value.

Question 71

Evidence supporting the strong form efficient market hypothesis (EMH) resulted from examining

A) Value Line rankings.
B) Corporate insiders.
C) Stock exchange specialists.
D) Choices b and c
E) All of the above.

Question 72

Exhibit 5-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\text {mt }} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \\\hline \mathrm{A} & 10.3 & 12 & 0 & 0.6 \\\text { B } & 9.4 & 9.0 & 0 & 1.2\end{array}$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t

-Refer to Exhibit 5-4. What is the abnormal rate of return for Stock B during period t using only the aggregate market return (ignore differential systematic risk)?

A) 0.40
B) 1.40
C) -1.10
D) -4.40
E) -6.40

Question 73

Exhibit 5-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $$\begin{array} { l c c c c } \text { Stack } & R _ { \text {in } } & R _ { \text {mi } } & a _ { i } & \text { Beta } \\\hline \text { Elliat } & 9.9 & 15.0 & 0 & 0.8 \\\text { Hemlick } & 9.1 & 8.0 & 0 & 1.1\end{array}$$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t

-Refer to Exhibit 5-3. What is the abnormal rate of return for Elliot during period t using only the aggregate market return (ignore differential systematic risk)?

A) 1.50
B) 1.10
C) -1.50
D) -5.10
E) -8.00

Question 74

Exhibit 5-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\mathrm{mt}} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \\\hline \text { C } & 12 & 10 & 0 & 0.8 \\\mathrm{E} & 10 & 8.0 & 0 & 1.1\end{array}$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t

-Refer to Exhibit 5-1. What is the abnormal rate of return for Stock E when you consider its systematic risk measure (beta)?

A) 2.0%
B) 1.2%
C) 4.0%
D) -1.05%
E) -8.5%

Question 75

Exhibit 5-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\text {mt }} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \\\hline \mathrm{A} & 10.3 & 12 & 0 & 0.6 \\\text { B } & 9.4 & 9.0 & 0 & 1.2\end{array}$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t

-Refer to Exhibit 5-4. What is the abnormal rate of return for Stock A when you consider its systematic risk measure (beta)?

A) 2.30%
B) 2.10%
C) 3.10%
D) 12.40%
E) None of the above

Question 76

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 XYZ during period t using only the aggregate market return (ignore differential systematic risk)?

A) -3.2%
B) 2.4%
C) 2.0%
D) 1.3%
E) -1.5%

Question 77

Exhibit 5-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\text {mt }} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \\\hline \mathrm{A} & 10.6 & 15 & 0 & 0.8 \\\mathrm{Z} & 9.8 & 8.0 & 0 & 1.1\end{array}$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t

-Refer to Exhibit 5-5. What is the abnormal rate of return for Stock A during period t using only the aggregate market return (ignore differential systematic risk)?

A) 3.40
B) 4.40
C) -1.86
D) -4.40
E) -1.70

Question 78

Exhibit 5-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\mathrm{mt}} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \\\hline \text { C } & 12 & 10 & 0 & 0.8 \\\mathrm{E} & 10 & 8.0 & 0 & 1.1\end{array}$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t

-Refer to Exhibit 5-1. What is the abnormal rate of return for Stock C when you consider its systematic risk measure (beta)?

A) 4.0%
B) 1.2%
C) 2.0%
D) -1.05%
E) -8.5%

Question 79

Exhibit 5-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $$\begin{array} { l c c c c } \text { Stack } & R _ { \text {in } } & R _ { \text {mi } } & a _ { i } & \text { Beta } \\\hline \text { Elliat } & 9.9 & 15.0 & 0 & 0.8 \\\text { Hemlick } & 9.1 & 8.0 & 0 & 1.1\end{array}$$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t

-Refer to Exhibit 5-3. What is the abnormal rate of return for Hemlick during period t using only the aggregate market return (ignore differential systematic risk)?

A) 0.11
B) 1.10
C) -1.70
D) -1.80
E) -4.60

Question 80

Exhibit 5-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $$\begin{array} { l c c c c } \text { Stack } & R _ { \text {in } } & R _ { \text {mi } } & a _ { i } & \text { Beta } \\\hline \text { Elliat } & 9.9 & 15.0 & 0 & 0.8 \\\text { Hemlick } & 9.1 & 8.0 & 0 & 1.1\end{array}$$
R_it = return for stock i during period t
R_mt = return for the aggregate market during period t

-Refer to Exhibit 5-3. What is the abnormal rate of return for Elliot when you consider its systematic risk measure (beta)?

A) -2.10%
B) -2.00%
C) 5.20%
D) 14.10%
E) None of the above