In: Finance
Consider the three stocks in the following table.
Pt represents price at time t, and
Qt represents shares outstanding at time
t. Stock C splits two-for-one in the last
period.
P0 | Q0 | P1 | Q1 | P2 | Q2 | |
A | 85 | 100 | 90 | 100 | 90 | 100 |
B | 45 | 200 | 40 | 200 | 40 | 200 |
C | 90 | 200 | 100 | 200 | 50 | 400 |
a. Calculate the rate of return on a
price-weighted index of the three stocks for the first period
(t = 0 to t = 1). (Do not round
intermediate calculations. Round your answer to 2 decimal
places.)
b. What will be the divisor for the price-weighted
index in year 2? (Do not round intermediate calculations.
Round your answer to 2 decimal places.)
c. Calculate the rate of return of the
price-weighted index for the second period (t = 1 to
t = 2).