Compute the rate of return on a price-weighted index of the

Reference no: EM13477751

Consider the three stocks in the following table. Pt represents price at time t, and Q t represents shares outstanding at time t. Stock C splits three- for- one in the last period.

P0 Q0 P1 Q1 P2 Q2

A 80 200 90 200 90 200

B 50 300 40 300 40 300

C 90 200 110 200 40 600

a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t=0 to t=1)

b. What must happen to the divisor for the price- weighted index in year 2?

c. Calculate the rate of return of the price-weighted index for the second period (t=1 to t=2)

Reference no: EM13477751

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