i. Calculate the rate of return on a price-weighted index of the four stocks from Year 1 to Year 2.

ii. What will be the divisor for the price-weighted index on January 1, Year 3 (Note that K undergoes a stock split at close of day December 31, Year 2)?

iii. Calculate the rate of return on an equal-weighted (unweighted) index of the four stocks from Year 1 to Year 2.

iv. Calculate the rate of return on a value-weighted index of the four stocks from Year 1 to Year 2.

b). You open a brokerage account, and purchase on margin 800 shares of Xcel stock at $55 per share. Initial margin on the account is 50%, and the maintenance margin is 30%. The interest rate on borrowed fund is 7% per year.

i. How low can the price of Xcel shares fall before you receive a margin call? Ignore interest on this problem.

ii. If the share price falls to $39 per share by the end of the year, what is the remaining percentage margin in her account? Will you receive a margin call?

iii. You sold the 800 shares of Xcel at $60 per share at the end of the year. Also, assume your broker charged a commission of $50 to execute the buy order and charged a commission of $50 to execute the sell order. What is the rate of return on your investment?

c.) Suppose you short-sell 100 shares of IBM, now selling at $160 per share. Initial margin on the account is at 50% and maintenance margin is at 30%.

i. At what price would you get a margin call?

ii. Three months later, IBM pays a dividend of $1/share, and its share is now traded at $130 per share. Ignore commission.

What is the remaining equity in your account at this point?

What is the margin percentage in your account at this point?

What is the rate of return on your transaction?

An analyst gathered the following data about stocks J, K, L and M. Suppose we want to create an index from these four stocks