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]