Question

The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance). Assume the index is scaled by a factor of 10 million; that is, if the total value of all firms in the market is $5 billion, the index would be quoted as 500.

		Price
	Shares (millions)		1/1/16			1/1/17			1/1/18
Douglas McDonnell	360		$	65		$	69		$	83
Dynamics General	450			52			46			60
International Rockwell	170			81			70			86

a. Calculate the initial value of the index if a value-weighting scheme is used. (Round your answer to 2 decimal places.)

index value

b. What is the rate of return on this index for the year ending December 31, 2016? For the year ending December 31, 2017? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

2016 return
2017 return

Answer 1