Assignment6_2007_1

# Assignment6_2007_1 - FINC 727 Corporate transactions and...

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FINC 727: Corporate transactions and business valuation Professor Robert Hansen Assignment 6. Salomon Scandal Your group should examine the daily "abnormal returns" to Salomon's common stock from July 15, 1991 through December 31, 1991, to include their computation for specific events. During this period Salomon was engaged in scandal, which led to a strategy of significant reorganization designed to salvage the company from its demise. Data for this problem is located on the Class web page. There are two price series; the common stock price for Salomon Inc, and the daily close for the S&P 40 Financial Index, hereafter the "Market Index." Shares outstanding for Salomon are Date Shares Outstanding 1/01/91 110,968,000 4/01/91 109,936,000 7/01/91 111,994,000 10/01/91 112,508,000 Abnormal returns should be calculated three ways. The first two use the "mean adjusted" approach and a comparison period mean return for Salomon which acts as the "expected return" component in the abnormal return computation. For one of these comparison periods, use the returns from April 15, 1991 through July 14, 1991. For the second comparison period use the raw returns from January 1, 1992 through March 31, 1992. The third approach for computing abnormal returns should use the Market Index to compute "market adjusted" daily abnormal returns. A. Plot the Cumulative Abnormal Return for each of the three abnormal return series in the same diagram, from July 15, 1991 to December 31, 1991. Exhibit 6-1 contains key announcements taken from the Wall Street Journal , that occurred during the period of study. All announcements appeared in the Wall Street Journal and the date indicated by the announcement is the day the announcement was reported by the Wall Street Journal . In a separate diagram, for each announcement, report the "two-day" abnormal return realized on Salomon's common, using all three abnormal return computation methods.

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• Spring '08
• Hansen
• Valuation, Salomon, Salomon Brothers

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