Consider the three stocks in the following table. Pt represents price at time t,
ID: 1169909 • Letter: C
Question
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
135
140
140
140
140
140
B
125
280
120
280
120
280
C
250
280
260
280
135
560
Calculate the first period rates of return on the following indexes of the three stocks (t = 0 to t = 1)
A market value-weighted index.
An equally weighted index.
P0
Q0
P1
Q1
P2
Q2
A
135
140
140
140
140
140
B
125
280
120
280
120
280
C
250
280
260
280
135
560
Explanation / Answer
First period return on the following indexes are as follows:
1. A market value weighted index = ((140*140 + 120*280 + 260*280)/(135*140 + 125*280 + 250*280) - 1)* 100 %
= 1.7%
2. Equally weighted index = ((140+120+260)/(135+125+250)- 1) * 100%
= 1.96%