On November 14, Thorogood Enterprises announced that the public and acrimonious
ID: 2649442 • Letter: O
Question
On November 14, Thorogood Enterprises announced that the public and acrimonious battle with its current CEO had been resolved. Under the terms of the deal, the CEO would step down from his position immediately. In exchange, he was given a generous severance package. Given the information below, calculate the cumulative abnormal return (CAR) around this announcement. Assume the company has an expected return equal to the market return. (Negative values should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 1 decimal place.)
On November 14, Thorogood Enterprises announced that the public and acrimonious battle with its current CEO had been resolved. Under the terms of the deal, the CEO would step down from his position immediately. In exchange, he was given a generous severance package. Given the information below, calculate the cumulative abnormal return (CAR) around this announcement. Assume the company has an expected return equal to the market return. (Negative values should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 1 decimal place.)
Explanation / Answer
Answer
The company has an expected return equal to the market return. Average market return is 0.52 as found in below table. The company has an expected return of 0.52. So abnormal company return should be found with reference of 0.52 expected return.
Days from announcement
Date
Market return
Company return
Daily abnormal return
Cumulative abnormal return
A
B
Cum. Abn. return of yr (t-1) day+ Dal. Abn. Return of t day
[B - Avg. Market return (0.52)]
-5
07-Nov
2.1
1.7
1.18
1.18
-4
08-Nov
1.9
1.7
1.18
2.36
-3
09-Nov
-1.8
-0.2
-0.72
1.64
-2
10-Nov
-0.6
-0.4
-0.92
0.72
-1
11-Nov
2.9
1
0.48
1.2
0
14-Nov
-1.7
3.4
2.88
4.08
1
15-Nov
0.1
0.1
-0.42
3.66
2
16-Nov
0.9
2.3
1.78
5.44
3
17-Nov
1.8
0.5
-0.02
5.42
4
18-Nov
-1.8
0
-0.52
4.9
5
19-Nov
1.9
0.2
-0.32
4.58
total
5.7
No of days
11
Avg. Market return
0.52
Days from announcement
Date
Market return
Company return
Daily abnormal return
Cumulative abnormal return
A
B
Cum. Abn. return of yr (t-1) day+ Dal. Abn. Return of t day
[B - Avg. Market return (0.52)]
-5
07-Nov
2.1
1.7
1.18
1.18
-4
08-Nov
1.9
1.7
1.18
2.36
-3
09-Nov
-1.8
-0.2
-0.72
1.64
-2
10-Nov
-0.6
-0.4
-0.92
0.72
-1
11-Nov
2.9
1
0.48
1.2
0
14-Nov
-1.7
3.4
2.88
4.08
1
15-Nov
0.1
0.1
-0.42
3.66
2
16-Nov
0.9
2.3
1.78
5.44
3
17-Nov
1.8
0.5
-0.02
5.42
4
18-Nov
-1.8
0
-0.52
4.9
5
19-Nov
1.9
0.2
-0.32
4.58
total
5.7
No of days
11
Avg. Market return
0.52
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.