Question
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
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). Suppose that Douglas McDonnell shareholders approve a 2-for-1 stock split on January 1, 2020. 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. What is the new divisor for the index? (Do not round intermediate calculations. Round your answer to 3 decimal places.) b. Calculate the rate of return on the index for the year ending December 31, 2020, if Douglas McDonnells share price on January 1, 2021, is $24.36 per share. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
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