Reference no: EM132540450

Consider the following stock information (price and number of shares outstanding):

                          Stock G                Stock A                     Stock Q

P0                    $70                   $85                       $105

Q0                    200                    500                      300

P1                 $84                          $81                   $110

Q1                200                           500                    300

P2                  $20                      $85                       $24

Q2                    800                      500                    1500

Question 1. Based on the information given, for a price-weighted index of the three stocks calculate:

1.1. the rate of return for the first period (t=0 to t=1). Interpret your answer.

1.2. the value of the divisor in the second period (t=1 to t=2). Assume that Stock G had a 4-1 split and stock Q has a 5-1 split, both during this period just before the market opens in t=2. Interpret your answer.

1.3. the rate of return for the second period (t=1 to t=2). Interpret your answer.

Question 2. Based on the information given for the three stocks, calculate the first-period rates of return (from t=0 to t=1) on

2.1. a market-value-weighted index. Interpret your answer.

2.2. an equally-weighted index. Explain any differences with 1.1. and 2.1