You have accumulated data on three stocks (see below). You have decided to use t

Question

You have accumulated data on three stocks (see below). You have decided to use the information on these stocks to form an index. You want to find the average earned rate of return for 2011 on your index. If you follow the averaging procedure used to calculate the S&P 500 Index return, what would your index's rate of return be? Hints: Rates of return are based on beginning-of-year prices, and the S&P Index is weighted by market values of the companies in the index.
Shares Beginning Ending Outstanding || Stock Dividend Price Price (millions)
A $1.50 $30.00 $32.00 5.00
B $2.00 $28.50 $27.00 4.50
C $0.75 $20.00 $24.00 20.00

Please show how you solved this so I can understand the problem. Thanks

Explanation / Answer

Stock

dividend

Price at beginning

ending

chnage

Share -outstanding

Toal=market value

Weight(%)

A

1.50

30.00

32.00

2.00

5.00

150.00

22.12

B

2.00

28.50

27.00

-1.50

4.50

128.25

18.91

C

0.75

20.00

24.00

4.00

20.00

400.00

58.98

678.25

Stock

Dividend

yield

Gain yiels

Etoal returen

weight

Weight

return

A

5%

6.67%

11.67%

0.2212%

0.0258

B

7.02%

-5.26%

1.75%

1.75%

0.0033

C

3.75%

20.00%

23.75%

23.75%

0.01401

0.1692

Answer Index return: 16.92%

Stock

dividend

Price at beginning

ending

chnage

Share -outstanding

Toal=market value

Weight(%)

A

1.50

30.00

32.00

2.00

5.00

150.00

22.12

B

2.00

28.50

27.00

-1.50

4.50

128.25

18.91

C

0.75

20.00

24.00

4.00

20.00

400.00

58.98

678.25

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