Compute the rate of return on a price-weighted index of the

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

             P0     Q0     P1     Q1     P2     Q2

A           80     200   90     200   90     200

B           50     300   40     300   40     300

C           90     200   110   200   40     600

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 in year 2?

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

Reference no: EM13477751

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