Question
The following three defense stocks are to be combined into a stock index in January 2013 (perhaps a portfolio manager believes these stocks are an
The following three defense stocks are to be combined into a stock index in January 2013 (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) 1/1/13 1/1/14 1/1/15 Douglas McDonnell 415 $ 84 $ 89 $ 106 Dynamics General 225 23 16 30 International Rockwell 350 52 41 55 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, 2013? For the year ending December 31, 2014?
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