24 Jul WHAT WILL THE INDEX VALUE BE ON JANUARY 1 2014?
In addition to price-weighted and value-weighted indexes an equally weighted index is one in wh Show more In addition to price-weighted and value-weighted indexes an equally weighted index is one in which the index value is computed from the average rate of return of the stocks comprising the index. Equally weighted indexes are frequently used by financial researchers to measure portfolio performance. 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): Price Price Price Price Price Price Price Price Price Price Shares (millions) 1/1/13 1/1/13 1/1/14 1/1/14 1/1/15 1/1/15 Douglas McDonnell 180 $ 60 $ 64 $ 77 Dynamics General 325 68 64 78 International Rockwell 370 97 86 100 a. Compute the rate of return on an equally weighted index of the three defense stocks for the year ending December 31 2013. (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the % sign in your response.) Index return % b. If the index value is set to 100 on January 1 2013 What will the index value be on January 1 2014? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Index value c. What is the rate of return on the index for 2014? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the % sign in your response.) Index return % Show less
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