Question
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
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 | 425 | $ | 72 | $ | 75 | $ | 92 | |||
Dynamics General | 530 | 50 | 43 | 57 | ||||||
International Rockwell | 310 | 79 | 68 | 85 | ||||||
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 %:
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