Answer the following questions.

$($i$)$ The following table provides the necessary information $($alpha$,$ beta and actual return$)$ for four stocks during their earnings announcements. It also provides the weights of a portfolio which invests in these stocks. The return on the market index is $1\mathrm{.}54\%.$ What is the portfolio$$s abnormal return? Round your answer using three decimals and choose the option which is closest to your calculations.

Stock

Actual Return

Alpha

Beta

Weight

$1$

$0\mathrm{.}0342$

$0\mathrm{.}1$

$1\mathrm{.}12$

$0\mathrm{.}15$

$2$

$-0\mathrm{.}0215$

$0\mathrm{.}08$

$0\mathrm{.}98$

$0\mathrm{.}35$

$3$

$0\mathrm{.}0212$

$-0\mathrm{.}23$

$0\mathrm{.}35$

$0\mathrm{.}35$

$4$

$0\mathrm{.}0314$

$0\mathrm{.}36$

$-1\mathrm{.}12$

$0\mathrm{.}15$

$($ii$)$ In a recent lawsuit, Firm A sued Firm B$.$ The court decision was announced today. The rate of return on Firm A was $0\mathrm{.}94\%.$ The rate of return on Firm B was $1\mathrm{.}12\%.$ The market return was $0\mathrm{.}84\%.$ Considering that: Firm A has an alpha of $-0\mathrm{.}1\%$ and a beta of $1\mathrm{.}2$ and Firm B has an alpha of $0\mathrm{.}08\%$ and a beta of $0\mathrm{.}5,$ which company do you think won the lawsuit?

Question $14$Answer

a$.$

$($i$)-1\mathrm{.}939\%,($ii$)$ Firm B

b$.$

$($i$)-3\mathrm{.}339\%,($ii$)$ Firm B

c$.$

$($i$)-3\mathrm{.}329\%,($ii$)$ Firm A

d$.$

$($i$)-1\mathrm{.}339\%,($ii$)$ Firm B

e$.$

$($i$)-1\mathrm{.}393\%,($ii$)$ Firm A