The following three defense stocks are to be combined into a stock index in January...
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Finance
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): Suppose that Douglas McDonnell shareholders approve a 3-for-1 stock split on January 1, 2017.
| Price | ||||||||||
| Shares (millions) | 1/1/16 | 1/1/17 | 1/1/18 | |||||||
| Douglas McDonnell | 415 | $ | 84 | $ | 89 | $ | 106 | |||
| Dynamics General | 225 | 23 | 16 | 30 | ||||||
| International Rockwell | 350 | 52 | 41 | 55 | ||||||
a. What is the new divisor for the index? (Do not round intermediate calculations. Round your answer to 3 decimal places.)
b. Calculate the rate of return on the index for the year ending December 31, 2017, if Douglas McDonnells share price on January 1, 2018, is $31.08 per share. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
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