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23 June, 00:14

An index model regression applied to past monthly returns in Ford's stock price produces the following estimates, which are believed to be stable over time: rF = 0.10% + 1.1rM If the market index subsequently rises by 8% and Ford's stock price rises by 7%, what is the abnormal change in Ford's stock price?

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  1. 23 June, 01:45
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    Abnormal change in Ford's stock = - 1.80%

    Explanation:

    Abnormal change in return Ford's stock change = Increase in Ford's Stock change - Beta*Change in Ford's Stock Price

    =7% - 1.1*8% = -1.80%
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