Question

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

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 86 100 91 100 91 100 B 46 200 41 200 41 200 C 92 200 102 200 51 400

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 indexvv

Market value weighted index return = (market value of period 1 - market value of period 0)/market value of period 0

Market value of period 0 = (Stock A P0*Q0) + (stock B P0*Q0) + (Stock C P0*Q0)

=(86*100)+(46*200)+(92*200)

=36200

Market value of period 1 = (Stock A P1*Q1) + (stock B P1*Q1) + (Stock C P1*Q1)

=(91*100)+(41*200)+(102*200)

=37700

Return of index period 1 = (37700-36200)/36200

=0.04143646409 or 4.14%

So market value weighted index return is 4.14%

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