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Consider the two stocks in the following table. Pt represents the price at the time and Qt represents shares outstanding at the time t. P0
Consider the two stocks in the following table. Pt represents the price at the time and Qt represents shares outstanding at the time t.
P0 Q0 | P1 Q1 | |
A | 50 100 | 45 100 |
B | 1000 200 | 1010 200 |
a) Find the individual stock's rate of return between period 0 and 1 (one return for A and one for B).
b)If we use the two stocks to form a price-weighted average index, what is the rate of return of this index between period 0 and 1?
c) If in period 1, stock B is replaced with C (p1 = 101, Q1 = 200), what will the new divisor be, assuming the original divisor to be two?
***Please show work and explain***
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