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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