income. Question No. 2 (7.5+7.5 Marks) a) Consider a price-weighted market index composed of two securities, A and B, with prices of$16 and $30, respectively. The index divisor is currently 2.0. Calculate the value of the divisor when: a. Stock A issues a 5% stock dividend. b. Stock B undergoes a 3-for-1 stock split. c. Stock A undergoes a 4-for-1 stock split. b) Consider three stocks, X, Y, and Z, with the following closing prices on two particular dates: On date 1 there are 100 shares of stock X, 200 shares of stock Y, and 100 shares of stock Z outstanding. Stock Date 1 $16 Y 5 z 24 Date 2 $22 4 30 a. Construct a price-weighted market index using the three stocks, X, Y, and Z a. What is the index's value on date 1? b. What is the price-weighted index's value on date 2? c. Assume that, on date 2, stock X splits 4-for-1. What is the price-weighted index's value on that date? d. Construct a value-weighted index using the three stocks. Assign the value weighted index a value of 100 on date 1. What is the index's value on date 2? Question No. 3 (7.5+7.5) a) Suppose that Intel currently is selling at $20 per share. You buy 1,000 shares using $15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%. a a. What is the percentage increase in the net worth of your brokerage account if the price of Intel immediately changes to: (i) $22; (ii) $20; (iii) $18? What is the relationship between your percentage return and the percentage change in the price of Intel? Page 2 of 3 income. Question No. 2 (7.5+7.5 Marks) a) Consider a price-weighted market index composed of two securities, A and B, with prices of$16 and $30, respectively. The index divisor is currently 2.0. Calculate the value of the divisor when: a. Stock A issues a 5% stock dividend. b. Stock B undergoes a 3-for-1 stock split. c. Stock A undergoes a 4-for-1 stock split. b) Consider three stocks, X, Y, and Z, with the following closing prices on two particular dates: On date 1 there are 100 shares of stock X, 200 shares of stock Y, and 100 shares of stock Z outstanding. Stock Date 1 $16 Y 5 z 24 Date 2 $22 4 30 a. Construct a price-weighted market index using the three stocks, X, Y, and Z a. What is the index's value on date 1? b. What is the price-weighted index's value on date 2? c. Assume that, on date 2, stock X splits 4-for-1. What is the price-weighted index's value on that date? d. Construct a value-weighted index using the three stocks. Assign the value weighted index a value of 100 on date 1. What is the index's value on date 2? Question No. 3 (7.5+7.5) a) Suppose that Intel currently is selling at $20 per share. You buy 1,000 shares using $15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%. a a. What is the percentage increase in the net worth of your brokerage account if the price of Intel immediately changes to: (i) $22; (ii) $20; (iii) $18? What is the relationship between your percentage return and the percentage change in the price of Intel? Page 2 of 3