1. Despite the announcement of a “super-profit”, the table above reveals that the price of
1.
Despite the announcement
of
a “super-profit”, the table above reveals that the price
of
Westpac
s h a r e s s l u m p e d
from
the
time of
the earnings announcement
on May 5th
to May 7th.
Explain the market response
in
terms
of
market efficiency.
[4 marks]
2. Given that the
earnings rose
by 30%
and
the
share
price fell from
$27.33
at the
start
of
trading
on May 5th to
$24.17
at
the close
of
trading
on May 7th,
use the market model
to
determine the abnormal return
to
Westpac shares
in
the period
May 5th
through
May
7th.
[Assume that the market index
is well
approximated by the ASX
200.] [6 marks]
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