Consider the three stocks in the following table. P_{t} represents price at time t, and Q_{t} represents shares outstanding at time t. Stock C splits two-for-one in the last period. |
P_{0} | Q_{0} | P_{1} | Q_{1} | P_{2} | Q_{2} | |
A | 95 | 100 | 100 | 100 | 100 | 100 |
B | 55 | 200 | 50 | 200 | 50 | 200 |
C | 110 | 200 | 120 | 200 | 60 | 400 |
Calculate the first-period rates of return on the following indexes of the three stocks: (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
a. | A market value–weighted index. |
Rate of return | % |
b. | An equally weighted index. |
Rate of return | % |
P_{0} | Q_{0} | P_{1} | Q_{1} | P_{2} | Q_{2} | ||||
A | 95 | 100 | 100 | 100 | 100 | 100 | |||
B | 55 | 200 | 50 | 200 | 50 | 200 | |||
C | 110 | 200 | 120 | 200 | 60 | 400 | |||
Answer a) | A market value–weighted index. | ||||||||
Return on index = | =(100*100+50*200+120*200)/(95*100+55*200+110*200)-1 | ||||||||
3.53% | |||||||||
Answer b) | An equally weighted index. | ||||||||
i | ii | iii=ii-i | iv=iii/i | ||||||
P_{0} | P_{1} | return | return % | ||||||
A | 95 | 100 | 5 | 5.26% | |||||
B | 55 | 50 | -5 | -9.09% | |||||
C | 110 | 120 | 10 | 9.09% | |||||
5.26% | |||||||||
return = 5.26%/3 | 1.75% |
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