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Question: officewarehouse ofw is an australian company that provides office supplies...

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OfficeWarehouse (OFW) is an Australian company that provides office supplies, ranging from office furniture, electronic equipment and stationery. The company operates over 500 stores across Australia. Some regional locations are owned by OFW, but most are on medium-term commercial rental contracts. Using the last 2 years of daily data, the company is reported to have a beta of 0.8 compared to the ASX200. The annual risk-free interest rate is 2.0% and the expected rate of return on the market is 9% p.a. The price of OFW at the beginning of the year (2020) was $18.5. Dividends are expected to be $0.40 per share at the end of year.  

Question 32 Market Efficiency (6 marks)

On the 22nd of January, the company revealed weak earnings through their quarterly report announcement. This low level of earnings fell far under the market consensus prior to the announcement. With reference to the below price information, answer the following (Rm = Market Return). The current risk-free rate is 2% annually (0.005% daily). Please calculate everything at the daily rate:

a.     Calculate the Abnormal Returns for the 5 days around the announcement, expressed as a percentage rounded to 1 decimal place. Show the working process for the Abnormal Return on 21st,22nd and 23rd of January, answers to the other two days without working are accepted. (3 marks)

b.     What kind of market efficiency do your calculations point to? Why? (3 marks)

 

  Date

  Change

  Open

  High

  Low

  Close

Volume

Rm

AR

24/01/2020

-1.6%

$20.59

$20.72

$20.38

$20.42

2844461

0.7%

 

23/01/2020

-1.8%

$20.82

$20.94

$20.60

$20.76

429409

-0.2%

 

22/01/2020

0.7%

$21.31

$21.42

$20.97

$21.13

9462285

0.5%

 

21/01/2020

-1.1%

$20.82

$21.06

$20.77

$20.98

2217435

-1.1%

 

20/01/2020

1.3%

$21.36

$21.48

$21.09

$21.21

9367573

0.7%

 
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