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):
Price | ||||||||||
Shares (millions) | 1/1/19 | 1/1/20 | 1/1/21 | |||||||
Douglas McDonnell | 345 | $ | 94 | $ | 97 | $ | 109 | |||
Dynamics General | 450 | 66 | 61 | 75 | ||||||
International Rockwell | 310 | 95 | 84 | 101 | ||||||
a. Calculate the initial value of the index if a price-weighting scheme is used.
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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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