The monthly rate of return on T-bills is 1%. The market went up this month by 1.5%. In addition, AmbChaser, Inc., which has an equity beta of 2, surprisingly just won a lawsuit that awards it $1 million immediately.
a. If the original value of AmbChaser equity were $100 million, what would you guess was the rate of return of its stock this month?
b. What is your answer to (a) if the market had expected AmbChaser to win $2 million?