Question
Asked Jul 1, 2019
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Analysis of 60 monthly rates of return on United Futon common stock indicates a beta of 1.46 and an alpha of -0.21% per month. A
month later, the market is up by 5.1%, and United Futon is up by 6.1 %. What is Futon's abnormal rate of return? (A negative answer
should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal
places.)
Rate of return
(1.34)
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Analysis of 60 monthly rates of return on United Futon common stock indicates a beta of 1.46 and an alpha of -0.21% per month. A month later, the market is up by 5.1%, and United Futon is up by 6.1 %. What is Futon's abnormal rate of return? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Rate of return (1.34)

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Expert Answer

Step 1

Calculation of Abnormal Rate of Return:

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Changein Re turn Abnormal Re al Return = | Increase in Re turn -| Alpha + xBeta [6.1%-(-021%+ (5.1%x1.46)) -[6.1%-0.07236] 1.1360% or - 1.14%

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