Question

On January 27, 2010, Steve Jobs took the stage to announce, as expected, a new addition to the Apple's (AAPL) product line. The iPad, a tablet computer, received good reviews but the stock price fell from a close of $205.94 on January 26th to $192.06 by the weekend. In the same period, the Nasdaq index went from 2203.73 to 2147.35.

Why would the price of AAPL fall just when the company announces an exciting new product?

Comment on what part of the move in AAPL's price was systematic and what part was intrinsic. Assume that AAPL has a beta of 1.28 versus the Nasdaq index.

Answer 1

		% fall
Apple	0.932602	6.74%
NASDAQ	0.974416	2.56%

Now the fall in apple is much higher than fall in NASDAQ. Even if we compare it with beta of 1.28, it is higher. The return may be because of systematic factors. The fall in prices may have been result of the fact that Apple has ended its days of high revenue. Analysts have raised concerns that the sales for IPhone may level sending the stock price to a lower equillibrium value.

Hence a nealy half of portion of return was intrinsic and other half part, i.e. 1.28*2.56=3.28% was systematic. The announcement of new product could not overcome the concerns regarding Apple's performance and hence stock took a hit