Question

Consider the three stocks in the following table. P_t represents the price at the end of period t and Q_t is the number of shares outstanding. Stock C splits 3:1 during period 2.

	P0	Q0	P1	Q1	P2	Q2
A	$          16.00	150.00	$         18.00	150.00	$   21.00	150.00
B	$          32.00	400.00	$         40.00	400.00	$   42.00	400.00
C	$          50.00	200.00	$         63.00	200.00	$   29.00	600.00

Calculate the price-weighted index return for the period ending in 2. Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.

Answer 1

IV1 = [P1_i] / n

= [$18 + $40 + $63] / 3 = $121 / 3 = $40.33

IV2 = [P2_i] / n

= [$21 + $42 + $29] / 3 = $92 / 3 = $30.67

R(year 2) = [IV2 / IV1] - 1

= [$30.67 / $40.33] - 1 = 0.7603 - 1 = -0.2397, or -23.97%