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.
P_{0} | Q_{0} | P_{1} | Q_{1} | P_{2} | Q_{2} | |
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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