which one is correct? Based on Stock Z's beta of 0.9 the normal return is 9 percent. However, the actual return for Stock Z was 8 percent. What is Stock Z's abnormal rate of return? a. 1.0 percent b. 0.1 percent c. −0.1 percent d. 1.1 percent e. −1.0 percent

which one is correct? Based on Stock Z's beta of 0.9 the normal return is 9 percent. However, the actual return for Stock Z was 8 percent. What is Stock Z's abnormal rate of return? a. 1.0 percent b. 0.1 percent c. −0.1 percent d. 1.1 percent e. −1.0 percent

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 1P: The standard deviation of stock returns for Stock A is 40%. The standard deviation of the market...

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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

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which one is correct?

Based on Stock Z's beta of 0.9 the normal return is 9 percent. However, the actual return for Stock Z was 8 percent. What is Stock Z's abnormal rate of return?

	a.	1.0 percent
	b.	0.1 percent
	c.	−0.1 percent
	d.	1.1 percent
	e.	−1.0 percent

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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