The following three defense stocks are to be combined into a stock index in Janu

Question

The following three defense stocks are to be combined into a stock index in January 2016. 1. Calculate the initial value of the index if a price weighting scheme is used. Check my work 4 The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance) ice Douglas NcDonnell Dynanics General International Rockvell 345 450 310 $ 97 61 84 $109 75 101 $ 94 95 a. Calculate the initial value of the index if a price-weighting scheme is used b. What is the rate of return on this index for the year ending December 31, 2016? For the year ending December 31, 2017? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places) 2016 retum 2017 retum

Explanation / Answer

Answer:

a. Index Value = (94+66+95)/3 = 85.00

b. 1/1/17 Index Value = (97+61+84)/3 = 80.67

2016 return = (80.67-85)/85 = 5.09%

1/1/18 Index Value = (109+75+101)/3 = 95

2017 return = (95-80.67)/80.67 = 17.76%

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