- Problem 5-16 Value-Weighted Indexes (LO4, CFA2)

The following three defense stocks are to be combined into a stock index in January 2019 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance). Assume the index is scaled by a factor of 10 million; that is, if the total value of all firms in the market is $5 billion, the index would be quoted as 500.

		Price
	Shares (millions)		1/1/19			1/1/20			1/1/21
Douglas McDonnell	420		$	63		$	67		$	84
Dynamics General	450			53			47			61
International Rockwell	250			82			71			87

a. Calculate the initial value of the index if a value-weighting scheme is used. (Round your answer to 2 decimal places.)

Index Value = _______

b. What is the rate of return on this index for the year ending December 31, 2019? For the year ending December 31, 2020? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

2019 Return = ______%

2020 Return = ______%

- Problem 6-3 Free Cash Flow Model (LO3, CFA2)

You are going to value Lauryns Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.7, a debt-to-equity ratio of .7, and a tax rate of 21 percent. Based on this information, what is the asset beta for Lauryns? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Lauryn's Asset Beta = __________