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Problem 5-18 Equally Weighted Indexes (LO4, CFA2) In addition to price-weighted and value-weighted indexes, an equally weighted index is one in which the index value
Problem 5-18 Equally Weighted Indexes (LO4, CFA2) In addition to price-weighted and value-weighted indexes, an equally weighted index is one in which the index value is computed from the average rate of return of the stocks comprising the index. Equally weighted indexes are frequently used by financial researchers to measure portfolio performance The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance) Price Shares Douglas McDonnel1 DynamicsGeneral International Rockwell (millions) 1/1/16 1/1/17 1/1/18 $106 34 415 225 350 $ 84 23 52 $ 89 20 41 a. Compute the rate of return on an equally weighted index of the three defense stocks for the year ending December 31, 2016. (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Index return
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