Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Assume you ran a regression of Alcoa (ticker: AA) stock returns on the (Rm-Rf) variable of the CAPM model and estimated that AA-stock's beta is
Assume you ran a regression of Alcoa (ticker: AA) stock returns on the (Rm-Rf) variable of the CAPM model and estimated that AA-stock's beta is 2.
If CAPM relation sets the expected rate of return on AA stock, what is the abnormal return (Actual Return - Expected return implied by CAPM) of the AA stock over the first 9 months of 2022? (from Jan-1 to Sep-30)
Rf: Current (latest) 3-month US Treasury rate (take 3.5% annual)
Rm: S&P 500 Return over Jan 1-Sep 30 period
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started