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

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 = 3.5%. The rate of return on Bpex was only /S = 3.1%. The market today responded to very encouraging news about the unemployment rate, and n?3.2% The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: Apex: rA 0.2% + 1.6rn a. what is the predicted returns for Apex & ????? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Predicted Returns Apex ???? b. Which company do you think won the lawsuit? Apex ????

Explanation / Answer

a)

Apex: rA = 0.2% + 1.6 ( 3.2%) = 5.32%

Bpex: rB = -0.1% + 0.8 ( 3.2%) = 2.46%

b)

Bpex won the lawsuit

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