The following three defense stocks are to be combined into a stock index in January...
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Accounting
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):
| Price | ||||||||||
| Shares (millions) | 1/1/16 | 1/1/17 | 1/1/18 | |||||||
| Douglas McDonnell | 420 | $ | 63 | $ | 67 | $ | 84 | |||
| Dynamics General | 450 | 53 | 47 | 61 | ||||||
| International Rockwell | 250 | 82 | 71 | 87 | ||||||
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?
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