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In a recent closely contested lawsuit, XYZ sued ABC for patent infringement. The jury came back today with its decision. The rate of return on
In a recent closely contested lawsuit, XYZ sued ABC for patent infringement. The jury came back today with its decision. The rate of return on XYZ was r_XYZ = 3.1%. The rate of return on ABC was only r_ABC = 2.5%. The market today responded to very encouraging news about the unemployment rate, and r_M = 3%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: XYZ: r_ XYZ = 0.2% + 1.4r_M ABC: r_ABC = -0.1% + 0.6r_M Which company do you think won the lawsuit? Why
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