Question

onsider 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.

	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

Answer 1

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%