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): Suppose that Douglas McDonnell shareholders approve a 2-for-1 stock split on January 1, 2017.
Price | ||||||||||
Shares (millions) | 1/1/16 | 1/1/17 | 1/1/18 | |||||||
Douglas McDonnell | 200 | $ | 70 | $ | 73 | $ | 87 | |||
Dynamics General | 300 | 51 | 46 | 60 | ||||||
International Rockwell | 390 | 80 | 69 | 86 | ||||||
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, 2017, if Douglas McDonnells share price on January 1, 2018, is $26.40 per share. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
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