The following three defense stocks are to be combined into a stock index in January...
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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). Assume the index is scaled by a factor of 10 million; that is, if the total value of all firms in the market is $5 billion, the index would be quoted as 500.
| Price | ||||||||||
| Shares (millions) | 1/1/16 | 1/1/17 | 1/1/18 | |||||||
| Douglas McDonnell | 350 | $ | 65 | $ | 69 | $ | 81 | |||
| Dynamics General | 450 | 25 | 19 | 33 | ||||||
| International Rockwell | 210 | 54 | 43 | 57 | ||||||
a. Calculate the initial value of the index if a value-weighting scheme is used. (Round your answer to 2 decimal places.)
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