The following three defense stocks are to be combined into a stock index in January 2016...

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The following three defense stocks are to be combined into astock index in January 2016 (perhaps a portfolio manager believesthese stocks are an appropriate benchmark for his or herperformance). Assume the index is scaled by a factor of 10 million;that is, if the total value of all firms in the market is $5billion, the index would be quoted as 500.
Price
Shares
(millions) 1/1/16 1/1/17 1/1/18
Douglas McDonnell 360 $ 65 $ 69 $ 83
Dynamics General 450 52 46 60
International Rockwell 170 81 70 86
a. Calculate the initial value of the index ifa value-weighting scheme is used. (Round your answer to 2decimal places.)
b. What is the rate of return on thisindex for the year ending December 31, 2016? For the year endingDecember 31, 2017? (A negative value should be indicated bya minus sign. Do not round intermediate calculations. Enter youranswers as a percent rounded to 2 decimal places.)

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4.1 Ratings (528 Votes)

a Value of stock Number of shares Price of share Value on 1116 Value of Douglas McDonnell 36065 23400m Value of Dynamics General 45052 23400m Value of See Answer

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The following three defense stocks are to be combined into astock index in January 2016 (perhaps a portfolio manager believesthese stocks are an appropriate benchmark for his or herperformance). Assume the index is scaled by a factor of 10 million;that is, if the total value of all firms in the market is $5billion, the index would be quoted as 500.PriceShares(millions)1/1/161/1/171/1/18Douglas McDonnell360$65$69$83Dynamics General450524660International Rockwell170817086a. Calculate the initial value of the index ifa value-weighting scheme is used. (Round your answer to 2decimal places.)b. What is the rate of return on thisindex for the year ending December 31, 2016? For the year endingDecember 31, 2017? (A negative value should be indicated bya minus sign. Do not round intermediate calculations. Enter youranswers as a percent rounded to 2 decimal places.)

		Price
	Shares (millions)		1/1/16		1/1/17		1/1/18
Douglas McDonnell	360		$	65	$	69	$	83
Dynamics General	450			52		46		60
International Rockwell	170			81		70		86