In: Finance
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.)
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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