Another type of index is the geometric index

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Another type of index is the geometric index. The calculation of a geometric index is similar to the calculation of a geometric return. The difference in the geometric index construction is the returns used are the returns for the different stocks in the index for a particular period, such as a day or year. Suppose 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 540 $ 103 $ 100 $ 81 Dynamics General 455 45 49 57 International Rockwell 290 74 79 81 What is the percentage rate of return on this index for the year ending December 31, 2016?

Reference no: EM131840006

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