The following three defense stocks are to be combined into a stock index in Janu
ID: 2382979 • Letter: T
Question
The following three defense stocks are to be combined into a stock index in January 2013 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance):
What is the rate of return on this index for the year ending December 31, 2013? For the year ending December 31, 2014? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
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The following three defense stocks are to be combined into a stock index in January 2013 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance):
Explanation / Answer
a. Initial index value = ($103 + $48 + $77) / 3
= $76
b. Index value at the end of 2013 = ($109 + $44 + $66) / 3
= $73
Therefore, Return for 2013 = [$73 / $76 - 1] * 100%
= -3.95%
Index value at the end of 2014 = ($123 + $58 + $80) / 3
= $87
Therefore, Return for 2014 = [$87 / $73 - 1] * 100%
= 19.18%
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