You consider buying a share of stock at a price of $25. The stock is expected to pay a dividend of $1.50 next year, and your advisory service tells you that you can expect to sell the stock in 1 year for $28. The stock's beta is 1.1, rf is 6%, and E[rm] = 16%. What is the stock's abnormal return?

A) 1%
B) 2%
C) -1%
D) -2%

Abnormal Return

The difference between the actual return of an investment and the expected return given its risk and the market's performance.

Advisory Service

A service provided by financial advisors or professionals offering expert advice on investment, planning, and managing finances.

Dividend

A share of a corporation's profits allocated to its shareholders, typically in cash or in the form of more shares.