Question
Consider the following three stocks that you use to construct a stock index. Daily prices are depicted for 3 days as: Day 1 Day 2
Consider the following three stocks that you use to construct a stock index. Daily prices are depicted for 3 days as: Day 1 Day 2 Day 3 Price #shares Price #shares Price #shares Stock A $80.00 50 $82.50 $35.00 Stock B $60.00 20 $68.75 $67.50 Stock C $125.00 10 $120.05 $95.00 At 4:01pm on Day 2, the following events take place in the market: Stock A experiences a 3:1 split Stock C declares a 40% dividend a) Considering a value-weighted index of stocks A, B and C, and setting the index to a value of 100 on day 1, calculate the index values for days 2 and 3, and the rate of return for each period (4 marks) b) Considering a price-weighted index of stocks A, B, and C, calculate the index values for days, 1, 2 and 3 and the rate of return foe each period (5 marks) c) Which stock is the most influential on the value-weighted index, and which is most influential on the price-weighted index? (1 mark)
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