Question
In: Finance
The following three defense stocks are to be combined into a stock index in January 2016...
The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance):
| Price | ||||||||||
| Shares (millions) |
1/1/16 | 1/1/17 | 1/1/18 | |||||||
| 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.
b. What is the rate of return on this index for the year ending December 31, 2016? For the year ending December 31, 2017? (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.)
Solutions
Expert Solution
Answers have been highlighted in yellow.
A. Value of Index is 85.
B. Rate of return for year ending December 31, 2016 is -5.1%.
Rate of return for year ending December 31, 2017 is 17.77%.
| Shares | Shares (in Mn) | 01-01-2016 | 01-01-2017 | 01-01-2018 |
| Douglas Mc donnel | 345 | 94 | 97 | 109 |
| Dynamic General | 450 | 66 | 61 | 75 |
| International Rockwell | 310 | 95 | 84 | 101 |
| Sum of Prices (sum of 3 shares prices) (A) | 255 | 242 | 285 | |
| Price Weighted Index Value (A/3) | 85 | 81 | 95 | |
| Returns (81-85), (95-81) | -4 | 14 | ||
| Returns % (-4/85), (14/81) | -5.10% | 17.77% |
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jeff jeffy answered 1 year agoRelated Solutions
The following three defense stocks are to be combined into a stock index in January 2016...
The following three defense stocks are to be combined into a
stock index in January 2016 (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)
1/1/16
1/1/17
1/1/18
Douglas McDonnell
350
$
65
$
69
$
81...
The following three defense stocks are to be combined into a stock index in January 2016...
The following three defense stocks are to be combined into a
stock index in January 2016 (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)
1/1/16
1/1/17
1/1/18
Douglas McDonnell
200
$
70
$
73
$
87...
The following three defense stocks are to be combined into a stock index in January 2016...
The following three defense stocks are to be combined into a
stock index in January 2016 (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)
1/1/16
1/1/17
1/1/18
Douglas McDonnell
350
$
65
$
69
$
81...
The following three defense stocks are to be combined into a stock index in January 2016...
The following three defense stocks are to be combined into a
stock index in January 2016 (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)
1/1/16 1/1/17 1/1/18 Douglas McDonnell 215 $ 64 $ 68 $ 82...
The following three defense stocks are to be combined into a stock index in January 2016...
The following three defense stocks are to be combined into a
stock index in January 2016 (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)
1/1/16
1/1/17
1/1/18
Douglas McDonnell
530
$
62
$
66
$
81...
The following three defense stocks are to be combined into a stock index in January 2016...
The following three defense stocks are to be combined into a
stock index in January 2016 (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)
1/1/16
1/1/17
1/1/18
Douglas McDonnell
340
$
103
$
106
$
118...
The following three defense stocks are to be combined into a stock index in January 2016...
The following three defense stocks are to be combined into a
stock index in January 2016 (perhaps a portfolio manager believes
these stocks are an appropriate benchmark for his or her
performance):
Price
Shares
(millions)
1/1/16
1/1/17
1/1/18
Douglas McDonnell
215
$
64
$
68
$
82
Dynamics General
455
72
64
78
International Rockwell
250
101
90
106
a. Calculate the initial value of the
index if a price-weighting scheme is used.
b. What is the rate of return...
The following three defense stocks are to be combined into a stock index in January 2016...
The following three defense stocks are to be combined into a
stock index in January 2016 (perhaps a portfolio manager believes
these stocks are an appropriate benchmark for his or her
performance).
Price
Shares
(millions)
1/1/16
1/1/17
1/1/18
Douglas McDonnell
540
$
62
$
66
$
81
Dynamics General
455
49
43
57
International Rockwell
290
78
67
81
a. Calculate the initial value of the
index if a price-weighting scheme is used.
Index value:
b. What is the...
The following three defense stocks are to be combined into a stock index in January 2016...
The following three defense stocks are to be combined into a
stock index in January 2016 (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)
1/1/16
1/1/17
1/1/18
Douglas McDonnell
360
$
65
$
69
$
83...
The following three defense stocks are to be combined into a stock index in January 2016...
The following three defense stocks are to be combined into a
stock index in January 2016 (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)
1/1/16
1/1/17
1/1/18
Douglas McDonnell
200
$
70
$
73
$
87...
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