Question

# Consider the three stocks in the following table. Pt represents price at time t, and Qt...

 Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two-for-one in the last period.
 P0 Q0 P1 Q1 P2 Q2 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 %

 P0 Q0 P1 Q1 P2 Q2 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 P0 P1 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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