Question

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 93 100 98 100 98 100 B 53 200 48 200 48 200 C 106 200 116 200 58 400 a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t = 0 to t = 1). (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be the divisor for the price-weighted index in year 2? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. Calculate the rate of return of the price-weighted index for the second period (t = 1 to t = 2).

Answer #1

Solution :-

(A) The rate of return on a price-weighted index of the three stocks for the first period = ( 87.33 / 84 ) - 1 = 3.97%

Yr 1 = ( 93 + 53 + 106 ) / 3 = 84

Yr 2 = ( 98 + 48 + 116 ) / 3 = 87.33

(B) The divisor for the price-weighted index in year 2

In the absence of a split, stock C would sell for 110, and the value of the index would be :-

( 98 + 48 + 116 ) / 3 = 87.33

After the split, stock C sells at 55. Therefore, we need to set the
divisor (d) such that:

83.33 = ( 98 + 48 + 58 ) / d

d = 2.45

**(C)**

Calculate the rate of return of the price-weighted index for the second period (t=1 to t=2).

**The rate of return is zero.**

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
86
100
91
100
91
100
B
46
200
41
200
41
200
C
92
200
102
200
51
400
a. Calculate the rate of return on a
price-weighted index of the three stocks for the first period
(t = 0 to t...

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
99
100
104
100
104
100
B
59
200
54
200
54
200
C
118
200
128
200
64
400
a.
Calculate the rate of...

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
88
100
93
100
93
100
B
48
200
43
200
43
200
C
96
200
106
200
53
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...

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
88
100
93
100
93
100
B
48
200
43
200
43
200
C
96
200
106
200
53
400
Calculate the first-period rates of...

onsider 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
87
100
92
100
92
100
B
47
200
42
200
42
200
C
94
200
104
200
52
400
a. Calculate the rate of return on a
price-weighted index of the three stocks for the first period
(t = 0 to t...

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
97
100
102
100
102
100
B
57
200
52
200
52
200
C
114
200
124
200
62
400
a. Calculate the rate of return on a
price-weighted index of the three stocks for the first period
(t = 0 to t...

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
90
100
95
100
95
100
B
50
200
45
200
45
200
C
100
200
110
200
55
400
Calculate the first-period rates of return on the following
indexes of the three stocks: (Do not round intermediate
calculations. Round answers to 2...

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
90
100
95
100
95
100
B
50
200
45
200
45
200
C
100
200
110
200
55
400
Calculate the first-period rates of return on the following
indexes of the three stocks: (Do not round intermediate
calculations. Round answers to 2...

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...

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
100 100 105 100 105 100 B 60 200 55 200 55 200 C 120 200 130 200 65
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...

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