QUESTION 1 You are given the following information concerning two stocks that ma

Question

QUESTION 1

You are given the following information concerning two stocks that make up an index. Assume that the divisor is 2. What is the percentage return for the price-weighted index?

2 points   

QUESTION 2

Suppose there are only two stocks in the market and the following information is given:

Suppose that McBeal splits 3-for-1. Based on beginning information, what is the new divisor? (Note: Before the split, the divisor is 2. Round your answer to four decimal places.)

2 points   

QUESTION 3

You are given the following information concerning two stocks that make up an index. What is the percentage value-weighted return for the index?

2 points   

QUESTION 4

You are given the following information concerning two stocks that make up an index. Assume the value-weighted index level was 419.59 at the beginning of the year. What is the index level at the end of the year?

2 points   

QUESTION 5

On August 30, 2010, the DJIA closed at 10,456.74. The divisor at that time was 0.12015025. What would the new index level be if all stocks on the DJIA increased by $3.00 per share on August 31, 2010?

Shares Outstanding Beginning of Year Price End of year Price Kirk, Inc 45,000 $81 91 Picard C. 60,000 41 47

Explanation / Answer

Q1

Weighted share price at beginning of the year = ($82×45,000+$40×60,000)÷105000= $58

Weighted share price at ending of the year = ($90×45,000+$47×60,000)÷105000 = $65.42

Price weighted return:

= Weighted share price at ending of the year- Weighted share price at beginning of the year)÷ Weighted share price at beginning of the year

= ($65.42-$58)/$58

= 0.1279 or 12.79%

Q2

After split of the share of Mc Beal inc. into 2 for 1, its price will go down(roughly to 1/2, though not exactly). Index will be calculated after multiplying the new price by 2.(so, the new Divisor=0.50)

Q3

Weighted share price at beginning of the year = ($86×42,000+$44×59,000)÷101000= $61.47

Weighted share price at ending of the year = ($94×42,000+$53×59,000)÷101000 = $70.05

Price weighted return:

= Weighted share price at ending of the year- Weighted share price at beginning of the year)÷ Weighted share price at beginning of the year

= ($70.05-$61.47)/$61.47

= 0.1395or 13.95%

Q4)

6176000

Index Level =419.59(6176000/5172000)

=$4799.88

Q5

DJIA is increased by 6% means =10457.31*6/100=627.42

DJIA closing price is 10,457.31

Increase of 6%= 627.42

Divisor 0.12091

New index level is =627.42/0.12091

                               =5189.14895

Shares Outstanding Beginning of Year Price End of year Price Kirk, Inc. 40,000 $84 $90 Picard Co. 56,000 42 46 5712000

6176000

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