Calculate the rate of return on a price-weighted index

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Reference no: EM132179232

Question - Consider the three stocks in the following table. P_t represents price at time t, and Q_t represents shares outstanding at time t Stock C splits two for one in the last period.

	P₀	Q₀	P₁	Q₁	P₂	Q₂
A	90	100	95	100	95	100
B	50	200	45	200	45	200
C	100	200	110	200	55	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).

b. What must happen to the divisor for the price-weighted index at t=2?

c. Calculate the rate of return of the price-weighted index for the second period (t=1 to t=2).

d. Calculate the rate of return on a market value-weighted index of the three stocks for the first period (t=0 to t=1).

Reference no: EM132179232

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