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Calculate the rate of return on a price-weighted index

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Reference no: EM132459610

Problem: 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 STOCK A $90 100 $95 100 $95 100 STOCK B $50 200 $45 200 $45 200 STOCK C $100 200 $110 200 $55 400

Required:

Question 1: Calculate the rate of return on a price-weighted index of the three stocks for the first period (from t= 0 to t = 1).

Question 2: What must happen to the divisor for the price-weighted index in year 2?

Question 3: Calculate the rate of return of the price-weighted index for the second period (from t = 1 to t = 2).

Reference no: EM132459610

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