Problem1 Indexes (33 points) Consider the three stocks in the following table. P

Question

Problem1 Indexes (33 points) Consider the three stocks in the following table. Pt represents the price at the end of period t and t is the number of shares outstanding. Stock C splits 3:1 during period 2 PO Q0 P1 P2 92 69.00 150.00 63.00 150.00 S 72.oo S 36.o0 S 7.00 150.00 37.00 400.00 42.00 400.00 400.00 9.00 200.00 12.00 200.00 600.00 1.1 Calculate the price-weighted index of the three stocks for each period (4 points). What is the divisor for each period (4 points)? Does it change in the last period (2 points)? V or why not (2 points)? Calculate the price-weighted index returns for the periods ending in1 and2 1.3 Calculate the value-weighted index returns for the periods ending in 1 and 2 (7 points) 1.4 Caleulate the equal- weighted index returns for the periods ending in 1 and 2 (7 points).

Explanation / Answer

1.2 The Price Weighted Index for the period 0 is (69+37+9)/3 = 38.33

The Price Weighted Index for the period 1 is (63+42+12)/3 = 39

The Price Weighted Index for the period 2 is (72+36+21)/3 = 43

So, the Price Weighted Index returns for the period ending 1 = (39-38.33)*100/38.33 = 1.74%

and the Price Weigthed Index returns for the period ending 2 = (43-39)*100/39 =10.26%

1.3 The Value Weighted Index for the Period 0 = (69*150+37*400+9*200)/(150+400+200) = 35.93

The Value Weighted Index for the Period 1 = (63*150+42*400+12*200)/(150+400+200) = 38.2

The Value Weighted Index for the Period 2 = (72*150+36*400+7*600)/(150+400+600) = 25.57

So, the Value Weighted Index returns for the period ending 1 = (38.2-35.93)*100/35.93 = 6.32%

and the Value Weighted Index returns for the period ending 2 = (25.57-38.2)*100/38.2 = -33.06

1.4 Equal Weighted Index Returns for the period 1 = (63-69)*100/69+(42-37)*100/37+(12-9)*100/9 = 38.15

Equal Weighted Index Returns for the period 2 = (72-63)*100/63+(36-42)*100/42+(7-12)*100/12 = -41.67

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