Consider the following stock information (price and number of shares outstanding):

Stock G Stock A Stock Q

P0 $70 $85 $105

Q0 200 500 300

P1 $84 $81 $110

Q1 200 500 300

P2 $20 $85 $24

Q2 800 500 1500

1. Based on the information given, for a price-weighted index of the three stocks calculate:

1.1. the rate of return for the first period (t=0 to t=1). Interpret your answer.

1.2. the value of the divisor in the second period (t=1 to t=2). Assume that Stock G had a 4-1 split and stock Q has a 5-1 split, both during this period just before the market opens in t=2. Interpret your answer.

1.3. the rate of return for the second period (t=1 to t=2). Interpret your answer.

2. Based on the information given for the three stocks, calculate the first-period rates of return (from t=0 to t=1) on

2.1. a market-value-weighted index. Interpret your answer.

2.2. an equally-weighted index. Explain any differences with 1.1. and 2.1