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We want to form an index using the five stocks presented in the below table: Initial Price (Po) Stock-A Stock-B Stock-C Stock-D Stock-E Shares Outstanding
We want to form an index using the five stocks presented in the below table: Initial Price (Po) Stock-A Stock-B Stock-C Stock-D Stock-E Shares Outstanding (20) 50 Millions 40 Millions 30 Millions 20 Millions 10 Millions $110 $120 $130 $140 $150 Price at the end of Period 1 (P1) $130 $120 $110 $100 $90 Price at the end of Period 2 (P2) $115 $125 $105 $135 $155 Price at the end of Period 3 (P3) $125 $145 $120 $115 $165 Assume each stock preserves the same number of outstanding shares during the three periods. Q3 = Q2 = Q1 = 20 A. Calculate the rate of return on a value-weighted (market-capitalization weighted) index for first period (from t = 0 to t= 1)? (4.5 pts) B. Calculate the rate of return on an equally weighted index for the second period (from t = 1 to t= 2)? (4.5 pts) C. Calculate the rate of return on a price-weighted index for the third period (from t = 2 to t= 3)? (4.5 pts) D. If now (at t=0), you invest $10,000 in an index fund that is tracking the performance of the value- weighted index formed from the above five stocks, how much money will you have after one period (at t = 1)? (1.5 pts)
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