Adequate information: Stock D Stock U Stock A Date Market return Company return Date Market return Company return Date Market return Company return 12-Jul -0.3 -0.5 8-Feb -0.9 -1.1 1-Oct 0.5 0.3 13-Jul 0 0.2 9-Feb -1 -1.1 2-Oct 0.4 0.6 16-Jul 0.5 0.7 10-Feb 0.4 0.2 3-Oct 1.1 1.1 17-Jul -0.5 -0.3 11-Feb 0.6 0.8 6-Oct 0.1 -0.3 18-Jul -2.2 1.1 12-Feb -0.3 -0.1 7-Oct -2.2 -0.3 19-Jul -0.9 -0.7 15-Feb 1.1 1.2 8-Oct 0.5 0.5 20-Jul -1 -1.1 16-Feb 0.5 0.5 9-Oct -0.3 -0.2 23-Jul 0.7 0.5 17-Feb -0.3 -0.2 10-Oct 0.3 1.1 24-Jul 0.2 0.1 18-Feb 0.3 0.2 13-Oct 0 -0.1 To compute: The cumulative abnormal return for these stocks as a group, prepare the graph and provide explanation. Introduction: The summation of abnormal returns for a required period of time is termed as cumulative abnormal return.

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Answer 1

Question

Chapter 14, Problem 1QAP

Summary Introduction

Adequate information:

Stock D Stock U Stock A
Date Market return Company return Date Market return Company return Date Market return Company return
12-Jul -0.3 -0.5 8-Feb -0.9 -1.1 1-Oct 0.5 0.3
13-Jul 0 0.2 9-Feb -1 -1.1 2-Oct 0.4 0.6
16-Jul 0.5 0.7 10-Feb 0.4 0.2 3-Oct 1.1 1.1
17-Jul -0.5 -0.3 11-Feb 0.6 0.8 6-Oct 0.1 -0.3
18-Jul -2.2 1.1 12-Feb -0.3 -0.1 7-Oct -2.2 -0.3
19-Jul -0.9 -0.7 15-Feb 1.1 1.2 8-Oct 0.5 0.5
20-Jul -1 -1.1 16-Feb 0.5 0.5 9-Oct -0.3 -0.2
23-Jul 0.7 0.5 17-Feb -0.3 -0.2 10-Oct 0.3 1.1
24-Jul 0.2 0.1 18-Feb 0.3 0.2 13-Oct 0 -0.1

To compute: The cumulative abnormal return for these stocks as a group, prepare the graph and provide explanation.

Introduction: The summation of abnormal returns for a required period of time is termed as cumulative abnormal return.

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The attached file contains hypothetical data for working this problem. Goodman Corporation’s and Landry Incorporated’s stock prices and dividends, along with the Market Index, are shown in the file. Stock prices are reported for December 31 of each year, and dividends reflect those paid during the year. The market data are adjusted to include dividends. Estimate Goodman’s and Landry’s betas as the slopes of regression lines with stock returns on the vertical axis (y-axis) and market return on the horizontal axis (x-axis). (Hint: use Excel’s SLOPE function.) Are these betas consistent with your graph?

The following are the end-of-month prices for both the Standard & Poor's 500 Index and Nike's common stock. a. Using the data in the popup window, calculate the holding-period returns for each of the months. b. Calculate the average monthly return and the standard deviation for both the S&P 500 and Nike. c. Develop a graph that shows the relationship between the Nike stock returns and the S&P 500 Index. (Show the Nike returns on the vertical axis and the S&P 500 Index returns on the horizontal axis.) d. From your graph, describe the nature of the relationship between Nike stock returns and the returns for the S&P 500 Index.

The attached file contains hypothetical data for working this problem. Goodman Corporation’s and Landry Incorporated’s stock prices and dividends, along with the Market Index, are shown in the file. Stock prices are reported for December 31 of each year, and dividends reflect those paid during the year. The market data are adjusted to include dividends. Calculate the standard deviation of the returns for Goodman, Landry, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.)

Answer 2

Question

Chapter 14, Problem 1QAP

Summary Introduction

Adequate information:

Stock D Stock U Stock A
Date Market return Company return Date Market return Company return Date Market return Company return
12-Jul -0.3 -0.5 8-Feb -0.9 -1.1 1-Oct 0.5 0.3
13-Jul 0 0.2 9-Feb -1 -1.1 2-Oct 0.4 0.6
16-Jul 0.5 0.7 10-Feb 0.4 0.2 3-Oct 1.1 1.1
17-Jul -0.5 -0.3 11-Feb 0.6 0.8 6-Oct 0.1 -0.3
18-Jul -2.2 1.1 12-Feb -0.3 -0.1 7-Oct -2.2 -0.3
19-Jul -0.9 -0.7 15-Feb 1.1 1.2 8-Oct 0.5 0.5
20-Jul -1 -1.1 16-Feb 0.5 0.5 9-Oct -0.3 -0.2
23-Jul 0.7 0.5 17-Feb -0.3 -0.2 10-Oct 0.3 1.1
24-Jul 0.2 0.1 18-Feb 0.3 0.2 13-Oct 0 -0.1

To compute: The cumulative abnormal return for these stocks as a group, prepare the graph and provide explanation.

Introduction: The summation of abnormal returns for a required period of time is termed as cumulative abnormal return.

Expert Solution & Answer

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Answer 3

Question

Chapter 14, Problem 1QAP

Summary Introduction

Adequate information:

Stock D Stock U Stock A
Date Market return Company return Date Market return Company return Date Market return Company return
12-Jul -0.3 -0.5 8-Feb -0.9 -1.1 1-Oct 0.5 0.3
13-Jul 0 0.2 9-Feb -1 -1.1 2-Oct 0.4 0.6
16-Jul 0.5 0.7 10-Feb 0.4 0.2 3-Oct 1.1 1.1
17-Jul -0.5 -0.3 11-Feb 0.6 0.8 6-Oct 0.1 -0.3
18-Jul -2.2 1.1 12-Feb -0.3 -0.1 7-Oct -2.2 -0.3
19-Jul -0.9 -0.7 15-Feb 1.1 1.2 8-Oct 0.5 0.5
20-Jul -1 -1.1 16-Feb 0.5 0.5 9-Oct -0.3 -0.2
23-Jul 0.7 0.5 17-Feb -0.3 -0.2 10-Oct 0.3 1.1
24-Jul 0.2 0.1 18-Feb 0.3 0.2 13-Oct 0 -0.1

To compute: The cumulative abnormal return for these stocks as a group, prepare the graph and provide explanation.

Introduction: The summation of abnormal returns for a required period of time is termed as cumulative abnormal return.

Expert Solution & Answer

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Check out a sample textbook solution

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Answer 4

Question

Chapter 14, Problem 1QAP

Summary Introduction

Adequate information:

Stock D Stock U Stock A
Date Market return Company return Date Market return Company return Date Market return Company return
12-Jul -0.3 -0.5 8-Feb -0.9 -1.1 1-Oct 0.5 0.3
13-Jul 0 0.2 9-Feb -1 -1.1 2-Oct 0.4 0.6
16-Jul 0.5 0.7 10-Feb 0.4 0.2 3-Oct 1.1 1.1
17-Jul -0.5 -0.3 11-Feb 0.6 0.8 6-Oct 0.1 -0.3
18-Jul -2.2 1.1 12-Feb -0.3 -0.1 7-Oct -2.2 -0.3
19-Jul -0.9 -0.7 15-Feb 1.1 1.2 8-Oct 0.5 0.5
20-Jul -1 -1.1 16-Feb 0.5 0.5 9-Oct -0.3 -0.2
23-Jul 0.7 0.5 17-Feb -0.3 -0.2 10-Oct 0.3 1.1
24-Jul 0.2 0.1 18-Feb 0.3 0.2 13-Oct 0 -0.1

To compute: The cumulative abnormal return for these stocks as a group, prepare the graph and provide explanation.

Introduction: The summation of abnormal returns for a required period of time is termed as cumulative abnormal return.

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Answer 5

Chapter 14, Problem 1QAP

Summary Introduction

Adequate information:

Stock D Stock U Stock A
Date Market return Company return Date Market return Company return Date Market return Company return
12-Jul -0.3 -0.5 8-Feb -0.9 -1.1 1-Oct 0.5 0.3
13-Jul 0 0.2 9-Feb -1 -1.1 2-Oct 0.4 0.6
16-Jul 0.5 0.7 10-Feb 0.4 0.2 3-Oct 1.1 1.1
17-Jul -0.5 -0.3 11-Feb 0.6 0.8 6-Oct 0.1 -0.3
18-Jul -2.2 1.1 12-Feb -0.3 -0.1 7-Oct -2.2 -0.3
19-Jul -0.9 -0.7 15-Feb 1.1 1.2 8-Oct 0.5 0.5
20-Jul -1 -1.1 16-Feb 0.5 0.5 9-Oct -0.3 -0.2
23-Jul 0.7 0.5 17-Feb -0.3 -0.2 10-Oct 0.3 1.1
24-Jul 0.2 0.1 18-Feb 0.3 0.2 13-Oct 0 -0.1

To compute: The cumulative abnormal return for these stocks as a group, prepare the graph and provide explanation.

Introduction: The summation of abnormal returns for a required period of time is termed as cumulative abnormal return.

Answer 6

Chapter 14, Problem 1QAP

Summary Introduction

Adequate information:

Stock D Stock U Stock A
Date Market return Company return Date Market return Company return Date Market return Company return
12-Jul -0.3 -0.5 8-Feb -0.9 -1.1 1-Oct 0.5 0.3
13-Jul 0 0.2 9-Feb -1 -1.1 2-Oct 0.4 0.6
16-Jul 0.5 0.7 10-Feb 0.4 0.2 3-Oct 1.1 1.1
17-Jul -0.5 -0.3 11-Feb 0.6 0.8 6-Oct 0.1 -0.3
18-Jul -2.2 1.1 12-Feb -0.3 -0.1 7-Oct -2.2 -0.3
19-Jul -0.9 -0.7 15-Feb 1.1 1.2 8-Oct 0.5 0.5
20-Jul -1 -1.1 16-Feb 0.5 0.5 9-Oct -0.3 -0.2
23-Jul 0.7 0.5 17-Feb -0.3 -0.2 10-Oct 0.3 1.1
24-Jul 0.2 0.1 18-Feb 0.3 0.2 13-Oct 0 -0.1

To compute: The cumulative abnormal return for these stocks as a group, prepare the graph and provide explanation.

Introduction: The summation of abnormal returns for a required period of time is termed as cumulative abnormal return.

Answer 7

Chapter 14, Problem 1QAP

Summary Introduction

Adequate information:

Stock D Stock U Stock A
Date Market return Company return Date Market return Company return Date Market return Company return
12-Jul -0.3 -0.5 8-Feb -0.9 -1.1 1-Oct 0.5 0.3
13-Jul 0 0.2 9-Feb -1 -1.1 2-Oct 0.4 0.6
16-Jul 0.5 0.7 10-Feb 0.4 0.2 3-Oct 1.1 1.1
17-Jul -0.5 -0.3 11-Feb 0.6 0.8 6-Oct 0.1 -0.3
18-Jul -2.2 1.1 12-Feb -0.3 -0.1 7-Oct -2.2 -0.3
19-Jul -0.9 -0.7 15-Feb 1.1 1.2 8-Oct 0.5 0.5
20-Jul -1 -1.1 16-Feb 0.5 0.5 9-Oct -0.3 -0.2
23-Jul 0.7 0.5 17-Feb -0.3 -0.2 10-Oct 0.3 1.1
24-Jul 0.2 0.1 18-Feb 0.3 0.2 13-Oct 0 -0.1

To compute: The cumulative abnormal return for these stocks as a group, prepare the graph and provide explanation.

Introduction: The summation of abnormal returns for a required period of time is termed as cumulative abnormal return.

Answer 8

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Answer 9

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Answer 10

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Answer 11

Ch. 14 - Prob. 1CQ Ch. 14 - Prob. 2CQ Ch. 14 - Efficient Market Hypothesis Which of the following...Ch. 14 - Market Efficiency Implications Explain why a...Ch. 14 - Efficient Market Hypothesis A stock market analyst...Ch. 14 - Semistrong Efficiency If a market is semistrong...Ch. 14 - Efficient Market Hypothesis What are the...Ch. 14 - Prob. 8CQ Ch. 14 - Prob. 9CQ Ch. 14 - Efficient Market Hypothesis For each of the...

Solution Summary: The author explains how to compute the cumulative abnormal return for a required period of time by subtracting the market return from the stock's return.

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Chapter 14 Solutions

Stock D			Stock U			Stock A
Date	Market return	Company return	Date	Market return	Company return	Date	Market return	Company return
12-Jul	-0.3	-0.5	8-Feb	-0.9	-1.1	1-Oct	0.5	0.3
13-Jul	0	0.2	9-Feb	-1	-1.1	2-Oct	0.4	0.6
16-Jul	0.5	0.7	10-Feb	0.4	0.2	3-Oct	1.1	1.1
17-Jul	-0.5	-0.3	11-Feb	0.6	0.8	6-Oct	0.1	-0.3
18-Jul	-2.2	1.1	12-Feb	-0.3	-0.1	7-Oct	-2.2	-0.3
19-Jul	-0.9	-0.7	15-Feb	1.1	1.2	8-Oct	0.5	0.5
20-Jul	-1	-1.1	16-Feb	0.5	0.5	9-Oct	-0.3	-0.2
23-Jul	0.7	0.5	17-Feb	-0.3	-0.2	10-Oct	0.3	1.1
24-Jul	0.2	0.1	18-Feb	0.3	0.2	13-Oct	0	-0.1