Suppose that we construct a market value-weighted index of three stocks. We have

Question

Suppose that we construct a market value-weighted index of three stocks. We have the following information one month ago about these stocks:

ConocoPhillips (COP): market value weight = 0.20; share price = $74

ExxonMobil Corp. (XOM): market value weight = 0.50; share price = $78

Halliburton Co. (HAL): market value weigh = 0.30; share price = $56

Today, we have the following information:

ConocoPhillips (COP): share price = $86; dividend per share just paid: $2

ExxonMobil Corp. (XOM): share price = $89; dividend per share just paid: $2

Halliburton Co. (HAL): share price = $61; dividend per share just paid: $2

What is the total return on a market value-weighted portfolio of the three stocks for this past month?

Explanation / Answer

Given ,
Market value weight Concophilip (COP) = 0.20
Market value weight ExonMobil (XOM) = 0.50
Market value weight Halliburton Co. (HAL) = 0.30

Before one month the value of the portfolio according to the weights was
0.20*74+0.50*78+0.30*56
= $70.60

After one month adjusting for dividend, the value is
= 0.20*(86+2)+0.50*(89+2)+0.30(61+2)
= $82

Total Return = 82-70.6
   = $11.4
% return = (11.4/70.6)*100
   = 16.15%

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