Question
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
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 | 355 | $ | 86 | $ | 91 | $ | 103 | |||
Dynamics General | 455 | 55 | 52 | 66 | ||||||
International Rockwell | 270 | 84 | 73 | 87 | ||||||
a. Calculate the initial value of the index if a value-weighting scheme is used. (Round your answer to 2 decimal places.)
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b. What is the rate of return on this index for the year ending December 31, 2019? For the year ending December 31, 2020? (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.)
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