Problem

Consider the three stocks in the following table. Pt represents price at time t, and Qt re...

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

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 in year 2?

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

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Solutions For Problems in Chapter 2