Consider the three stocks in the following table. Pt represents price at time t,
ID: 2814503 • 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. Qo 100 200 200 101 51 122 100 200 200 100 200 O1400 101 51 56 112 Calculate the first-period rates of return on the following indexes of the three stocks: (Do not round intermediate calculations. Round your answers to 2 decimal places.) a. A market value-weighted index Rate of return 3.47 % An equally weighted index Rate of return 3.47 %Explanation / Answer
Market Cap weighted
return = [ (101*100 + 51*200 + 122*200) / (96*100 + 56*200 + 112*200) ] -1
= 3.47%
Equal weighted
Average of return on individual stocks
Return A = (101/96) -1 = 5.21%
Return B = (51/56) -1 = -8.93%
Return C = (122/112)-1 = 8.93%
Return on index = (5.21 -8.93 +8.93) / 3
= 1.74 %