a) Calculate the rate of return on a price-weighted index of the three stocks for the first

period (t=0 to p=1)

index at 0 --> my answer: 80

index at 1 --> my answer 83,3

Rate of return --> my answer 4,17%

b) What must happend to the divisor for the price-weighted index in year 2?

index at 2 before the split: ??

index at 2 after the split without adjustment new divisor: ??

index at 2 after the split adjusted: ??

c) Calculate the rate of return of the price-weighted index for the second period (t=1 to t=2)

index at 1:

index at 2

Rate of return

Consider 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 00 P1 01 P2 02 A 90 100 95 100 95 100 B 50 200 45 200 45 200 C 100 200 110 200 55 400