1)

The following three defense stocks are to be combined into a stock index in January 2013 (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)		1/1/13			1/1/14			1/1/15
Douglas McDonnell	345		$	94		$	97		$	109
Dynamics General	450			66			61			75
International Rockwell	310			95			84			101

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, 2013? For the year ending December 31, 2014? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

2013 return	%
2014 return	%

2)

In addition to price-weighted and value-weighted indexes, an equally weighted index is one in which the index value is computed from the average rate of return of the stocks comprising the index. Equally weighted indexes are frequently used by financial researchers to measure portfolio performance.

The following three defense stocks are to be combined into a stock index in January 2013 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance):

	Price
	Shares (millions)		1/1/13			1/1/14			1/1/15
Douglas McDonnell	540		$	62		$	66		$	81
Dynamics General	455			49			43			57
International Rockwell	290			78			67			81

a.

Compute the rate of return on an equally weighted index of the three defense stocks for the year ending December 31, 2013. (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Index return

%

b.	If the index value is set to 100 on January 1, 2013, what will the index value be on January 1, 2014? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Index value

c.	What is the rate of return on the index for 2014? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Index return

%

Please help with both I cannot figure it out!