Answered: Given the above information, calculate…

Corporate Financial Accounting

14th Edition

ISBN:9781305653535

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter8: Receivables

Section: Chapter Questions

Problem 8.16EX: Effect of doubtful accounts on net income Using the data in Exercise 8-15, assume that during the...

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Problem 14-1 Cumulative Abnormal Returns

Delta, United, and American Airlines announced purchases of planes on July 18 (7/18), February 12 (2/12), and October 7 (10/7), respectively.

Delta	United	American
Date	Market Return	Company Return	Date	Market Return	Company Return	Date	Market Return	Company Return
7/12	−.37	−.53	2/8	−.86	−1.12	10/1	.57	.24
7/13	.00	.27	2/9	−.96	−1.12	10/2	.47	.73
7/16	.79	.98	2/10	.47	.28	10/3	1.17	1.17
7/17	−.79	−.64	2/11	.67	2.41	10/6	.17	−1.72
7/18	−2.16	1.06	2/12	−.37	−.04	10/7	−2.27	−.45
7/19	−.91	−.59	2/15	1.17	2.18	10/8	.57	.57
7/20	−.96	−1.11	2/16	.57	.57	10/9	−.37	−.22
7/23	.77	.44	2/17	−.37	−.27	10/10	.37	−.22
7/24	.27	.16	2/18	.37	.14	10/13	.00	−.17

Given the above information, calculate the cumulative abnormal return (CAR) for these stocks as a group. All of the stocks have a beta of 1 and no other announcements are made. (A negative answer should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Problem 14-1 Cumulative Abnormal Returns
Delta, United, and American Airlines announced purchases of planes on July 18 (7/18),
February 12 (2/12), and October 7 (10/7), respectively.
Date
7/12 -.37
.00
79
7/17 -.79
7/18 -2.16
7/13
7/16
7/19
7/20
7/23
7/24
Delta
Market Company
Return Return
-.53
.27
.98
-.91
-.96
-4
-3
-2
-1
0
1
2
3
4
77
27
Days from
announcement
-.64
1.06
-.59
-1.11
.44
16
United
Market Company
Return Return
Delta
Date
2/8 -.86
2/9 -.96
2/10
2/11
2/12 -.37
2/15
1.17
2/16
.57
2/17
-.37
2/18
37
.47
.67
-1.12
-1.12
.28
2.41
-.04
2.18
.57
-.27
14
American
Market Company
Return
Return
57
47
1.17
17
Date
10/1
10/2
10/3
10/6
10/7 -2.27
10/8
.57
10/9 -.37
10/10
10/13
Given the above information, calculate the cumulative abnormal return (CAR) for these
stocks as a group. All of the stocks have a beta of 1 and no other announcements are
made. (A negative answer should be indicated by a minus sign. Leave no cells blank -
be certain to enter "0" wherever required. Do not round intermediate calculations and
round your answers to 2 decimal places, e.g., 32.16.)
Abnormal returns (R; - RM)
United
American
.37
.00
.24
.73
1.17
-1.72
-.45
.57
-.22
-.22
-.17
Sum
Average abnormal
return
Cumulative
abnormal return

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