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). 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) 1/1/16 1/1/17 1/1/18 Douglas McDonnell 540 $ 62 $ 66 $ 81 Dynamics General 455 49 43 57 International Rockwell 290 78 67 81

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, 2016? For the year ending December 31, 2017? (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.) 2016 Return: % 2017 Return: %