Consider the three stocks in the following table. P, represents price at time t,
ID: 2740853 • Letter: C
Question
Consider the three stocks in the following table. P, represents price at time t, and Q, represents shares outstanding at time t. Stock C splits two -for -one In the last period Calculate the rate of return on a price-weighted index of the throe stocks for the first period (f = 0 to t= 1). (Do not round Intermediate calculations. Round your answer to 2 decimal places.) 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.)Explanation / Answer
Market value weighted index based rate of return for period 1
= {(Total of Market cap for period 1 - total market cap for period 0) / total market cap for period 0 } *100
= { (39100 – 37600) / 37600} * 100 = 3. 99%
rate of return for period 2
= {(Total of Market cap for period 2 - total market cap for period 1) / total market cap for period 1 } *100
= { (39100 – 39100) / 39100} * 100 = 0%
An Equally weighted index for period 1
(Return on stock A from period 0 to period 1 + Return on stock B from period 0 to period 1 Return on stock C from period 0 to period 1)/3 = 5.6818/3 = 1.89%
An Equally weighted index for period 2
(Return on stock A from period 1 to period 2 + Return on stock B from period 1 to period 2 Return on stock C from period 1 to period 2)/3 = 10.4167/3 = 3.47%
P0 Q0 Market Cap period 0 P1 Q1 Market Cap period 1 P2 Q2 Market Cap period 2 retern for period 1 retern for period 1 A 88 100 8800 93 100 9300 93 100 9300 5.6818 0 B 48 200 9600 43 200 8600 43 200 8600 -10.4167 0 C 96 200 19200 106 200 21200 53 400 21200 10.4167 10.4167 Total 500 37600 500 39100 700 39100 5.6818 10.4167