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The stocks of three companies are traded in a financial market. Company E (Energy sector) issues NE=10 shares, company H (Health-care sector) issues NH=40 shares,
The stocks of three companies are traded in a financial market. Company E (Energy sector) issues NE=10 shares, company H (Health-care sector) issues NH=40 shares, company B (Banking sector) issues NB=20 shares. The following table shows the trading prices of each stock on the first day of 3 consecutive periods t=0,1,2 : Using the data provided above: (a) EW is an equal-weighted index built using all the three stocks. Find the return of the index from t=0 to t=1 and from t=1 to t=2. Build a portfolio of stocks that tracks the index and has initial value p0EW=100. What is the value of the index in t=2 ? (b) PW is a price-weighted index built using all the three stocks. Find the return of the index from t=0 to t=1 and from t=1 to t=2. Build a portfolio of stocks that tracks the index and has initial value p0PW=100. What is the value of the index in t=2 ? (c) VW is a value-weighted index built using all the three stocks. Find the return of the index from t=0 to t=1 and from t=1 to t=2. Build a portfolio of stocks that tracks the index and has initial value p0VW=100. What is the value of the index in t=2
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