Consider the three stocks in the following table. Pt represents price at time t, and Qtr. represents shares outstanding at time t. Stock C splits two for one in the last period.
|
P0 |
Q0 |
P1 |
Q1 |
P2 |
Q2 |
|
|
A |
90 |
100 |
95 |
100 |
95 |
100 |
|
B |
50 |
200 |
45 |
200 |
45 |
200 |
|
C |
100 |
200 |
110 |
200 |
55 |
400 |
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 for the second period (t =1 to t =2).