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.

Shares (millions) PRICE

1/1/19 1/1/20 1/1/21

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