In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. T

Q: In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. T

a) Predicted returns Apex = 0.6% + 1.2*3% = 4.2% Bpex = -0.1% + 0.5*3% = 1.4% b) Alphas alpha of A = 3.3% - 4.2% = -0.9% alpha of B = 2.7% - 1.4% = 1.3% Bpex won the law suit has it is out performed the prediction

ID: 2793228 • Letter: I

Question

In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was a = 3.3%. The rate of return on Bpex was only fg= 27%. The market today responded to very encouraging news about the unemployment rate, and -3%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: Apex: rA-0.6% + 1 .2rM a. What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Predicted Returns Apex Bpex b. Which company do you think won the lawsuit? Apex Bpex

Explanation / Answer

Predicted returns

Apex = 0.6% + 1.2*3% = 4.2%

Bpex = -0.1% + 0.5*3% = 1.4%

Alphas

alpha of A = 3.3% - 4.2% = -0.9%

alpha of B = 2.7% - 1.4% = 1.3%

Bpex won the law suit has it is out performed the prediction

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In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. T

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In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. T

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