Question

tv - x 6 + 2 5 Homework Assignment x B pdf.pdf pdf-1.pdf → 0 0 file:///C:/Users/ayesha/Documents/HRM/Homework%20Assignment%201.pdf of 6 lo – + O Fit to page CD Page view A Read aloud L Add notes 6 H EB 6 4. (15 pts) 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. PO QOPQiP2Q2 $90 100 $95 100 $95 100 STOCK A STOCK B STOCK C $50 $100 200 200 $45 $110 200 2 00 $45 $55 200 400 a) Calculate the rate of return on a price-weighted index of the three stocks for the first period (from 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 (from t = 1 to t=2).

Answer 1

Solution (4) (2) Rote of Return for Stock A - = (495% 100 - 40 x100 5x100 => 5-55% 940 Rode of Return yon = (454200 - Soxlmo) xbe Stock B 50x200 1 = 6) 5,55% Negative nate implies less on the inwestment # Rate of Return for = 110x200-looxeleo lileo Stock C Toox doo = 10% ob The divisor for I becomes Ped the price - weighted inden in year 2 from P. go in part (a).

(6) Rate of Return for Stock A (second pesied) - = (asx loo - 95-10) 160 = of No return for stock A. Rate of Return for - Stock B = - (45+200-45x200 x 100 45x200 =07 No return for stock B Rate of Return for = (55x400- 110x800x100 Stock C [ 110x200 No return for stockC.