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). 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) 1/1/19 1/1/20 1/1/21 Douglas McDonnell 350 $ 65 $ 69 $ 81 Dynamics General 450 25 19 33 International Rockwell 210 54 43 57 a. Calculate the initial value of the index if a value-weighting scheme is used.

b. What is the rate of return on this index for the year ending December 31, 2019? For the year ending December 31, 2020? (