In addition to price-weighted and value-weighted indexes, an equally weighted index is one in which the index value is computed from the average rate of return of the stocks comprising the index. Equally weighted indexes are frequently used by financial researchers to measure portfolio performance. The following three defense stocks are to be combined into a stock index in January 2010 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance): Price Shares (millions) 1/1/10 1/1/11 1/1/12 Douglas 360 $65 $69 $ 83 McDonnell Dynamics 450 52 46 60 General International Rockwell 170 81 70 86 a. Compute the rate of return on an equally weighted index of the three defense stocks for the year ending December 31, 2010. (Negative amounts should be indicated by a minus sign. Round your answer to 2 decimal places. Omit the "%" sign in your response.) Index return % b. If the index value is set to 100 on January 1, 2010, what will the index value be on January 1, 2011? (Round your answer to 2 decimal places.) Index value c. What is the rate of return on the index for 2011? (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Index return %
In addition to price-weighted and value-weighted indexes, an equally weighted index is one in which the index value is computed from the average rate of return of the stocks comprising the index. Equally weighted indexes are frequently used by financial researchers to measure portfolio performance. The following three defense stocks are to be combined into a stock index in January 2010 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance): Price Shares (millions) 1/1/10 1/1/11 1/1/12 Douglas 360 $65 $69 $ 83 McDonnell Dynamics 450 52 46 60 General International Rockwell 170 81 70 86 a. Compute the rate of return on an equally weighted index of the three defense stocks for the year ending December 31, 2010. (Negative amounts should be indicated by a minus sign. Round your answer to 2 decimal places. Omit the "%" sign in your response.) Index return % b. If the index value is set to 100 on January 1, 2010, what will the index value be on January 1, 2011? (Round your answer to 2 decimal places.) Index value c. What is the rate of return on the index for 2011? (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Index return %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:In addition to price-weighted and value-weighted indexes, an equally weighted index is
one in which the index value is computed from the average rate of return of the stocks
comprising the index. Equally weighted indexes are frequently used by financial
researchers to measure portfolio performance.
The following three defense stocks are to be combined into a stock index in January
2010 (perhaps a portfolio manager believes these stocks are an appropriate benchmark
for his or her performance):
Price
Shares
(millions)
1/1/10
1/1/11 1/1/12
Douglas
360 $65
$69
$ 83
McDonnell
Dynamics
450
52
46
60
General
International
Rockwell
170
81
70
86
a. Compute the rate of return on an equally weighted index of the three defense stocks
for the year ending December 31, 2010. (Negative amounts should be indicated by a
minus sign. Round your answer to 2 decimal places. Omit the "%" sign in your
response.)
Index return
%
b. If the index value is set to 100 on January 1, 2010, what will the index value be on
January 1, 2011? (Round your answer to 2 decimal places.)
Index value
c. What is the rate of return on the index for 2011? (Round your answer to 2 decimal
places. Omit the "%" sign in your response.)
Index return
%
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