Videos
Requirement 1
To Calculate:
The
Introduction:
Stock exchanges are markets where securities can be bought as well as sold. New York Stock Exchange is one amongst the several markets where the investors can sell their shares or they could purchase their shares or stocks.
Stock Market Indexes are indicators of performance of the stock market.
Dow is the best known measure of the stock market performance.
Price weighted average is an average which is obtained by adding the stock prices and dividing it by a divisor.
Requirement 1
Answer to Problem 11PS
The rate of return on the price-weighted index for the first period for the three stocks is 4.17%
Explanation of Solution
Pt represents the price of a stock at time t and Qt represents the outstanding shares at time t. Stock C is split 2 for 1 in last period.
| Stock |
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 |
Return on the index is given by subtracting one from the value obtained when Price weighted index of period t1 divided by price weighted index of period t2.
| Stock |
Period 0 price |
Period 1 price |
| A |
90 |
95 |
| B |
50 |
45 |
| C |
100 |
110 |
| Sum of prices |
240 |
250 |
| Price weighted index = |
Sum/divisor |
Sum/divisor |
| Price weighted index (PWI) |
80.00 |
83.33 |
| Rate of return= |
(PWI 1/PWI 0 )-1 |
|
| Rate of return= |
4.17% |
The rate of return on price-weighted index of the three stocks for first period is 4.17%
Requirement 2
To Calculate:
The divisor for the price weighted index in the period 2.
Introduction:
Stock exchanges are markets where securities can be bought as well as sold. New York Stock Exchange is one amongst the several markets where the investors can sell their shares or they could purchase their shares or stocks.
Stock Market Indexes are indicators of performance of the stock market.
Dow is the best known measure of the stock market performance.
Price weighted average is an average which is obtained by adding the stock prices and dividing it by a divisor.
Requirement 2
Answer to Problem 11PS
The divisor at period 2 is 2.34
Explanation of Solution
Pt represents the price of a stock at time t and Qt represents the outstanding shares at time t. Stock C is split 2 for 1 in last period.
| Stock |
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 |
The divisor generally changes to show the stock split. It is obtained by dividing the sum of prices of stocks in the period when the stock was split by the price-weighted index in the previous period.
| Stock |
Period 1 price |
Period 2 price |
| A |
95 |
95 |
| B |
45 |
45 |
| C |
110 |
55 |
| Sum of prices |
250 |
195 |
| New divisor = |
Sum of stocks prices in period 2/ PWI of Period1 |
|
| New Divisor |
2.34 |
The divisor in the second period is 2.34
Requirement 3
To Calculate:
The rate of return of a price-weighted index of three stocks for the period t=1 to t=2
Introduction:
Stock exchanges are markets where securities can be bought as well as sold. New York Stock Exchange is one amongst the several markets where the investors can sell their shares or they could purchase their shares or stocks.
Stock Market Indexes are indicators of performance of the stock market.
Dow is the best known measure of the stock market performance.
Price weighted average is an average which is obtained by adding the stock prices and dividing it by a divisor.
Requirement 3
Answer to Problem 11PS
The rate of return on the price-weighted index for the second period for the three stocks is 0%
Explanation of Solution
Pt represents the price of a stock at time t and Qt represents the outstanding shares at time t. Stock C is split 2 for 1 in last period.
| Stock |
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 |
Return on the index is given by subtracting one from the value obtained when Price weighted index of period t1 divided by price weighted index of period t2.
| Stock |
Period 1 price |
Period 2 price |
| A |
95 |
95 |
| B |
45 |
45 |
| C |
110 |
55 |
| Sum of prices |
250 |
195 |
| Price weighted index = |
Sum/divisor |
Sum/divisor |
| Price weighted index (PWI) |
83.33 |
83.33 |
| Rate of return= |
(PWI 2/PWI 1 )-1 |
|
| Rate of return= |
0.00% |
The rate of return on price-weighted index of the three stocks for second period is 0%.
Want to see more full solutions like this?
Chapter 2 Solutions
EBK INVESTMENTS
- no ai Image is blurr do not answer this question if data is not clear or image is blurr. please comment i will write values but do not amswer with unclear values. i will give unhelpful sure.arrow_forwardDon't solve this question with unclear data. i will give unhelpful rating . please skip this qnarrow_forwardThe prodave paint company earned a net profit margin of 20% on revenues of $20m this year. Fixed Capital Investment was $2 m and depreciation was $3 m. Working capital Investment equals 7.5% of the Sales level in that year. Net income, fixed Capital Investment, depreciation, interest expenses and sales are expected to grow at 10% per year for the next 5 years. After 5 years, the growth in sales , net income, depreciation and interest expenses will decline to a stable 5% per year and fixed Capital Investment and depreciation will offset each other. The tax rate is 40% and the prodave has 1 m shares of common stock outstanding and long term debt paying 12.5% interest trading at it's par value of $32 m. The WACC is 17% during the high growth stage and 15% during the stable growth stage. Required: a) Calculate FCFE b) Determine FCFF c) Estimate the value of Equity d) Calculate the value of the Firmarrow_forward
- A key dynamic within any Multi-National Corporation (MNC) is cash and foreign exchange risk exposure. Cash management is critical and also heavily influenced by global dynamics, especially since COVID-19. Within the Caribbean and North American jurisdiction, the economic framework is tightly connected with the major Asian economies of China, the United Kingdom and Japan. The Caribbean and the North American economy have been a barometer of the global economic cycle.) For both Caribbean and North American economies, many Multi-National Corporations have made significant investments to reduce the production cost of goods and diversification benefits. Despite the benefits that could materialize, some North American countries have not been resilient through Global market shocks. Given this context, the following questions require research within the Caribbean context and current market dynamics since COVID-19. Your Manager has asked you to address the following concerns in the report 1)…arrow_forwardA key dynamic within any Multi-National Corporation (MNC) is cash and foreign exchange risk exposure. Cash management is critical and also heavily influenced by global dynamics, especially since COVID-19. Within the Caribbean and North American jurisdiction, the economic framework is tightly connected with the major Asian economies of China, the United Kingdom and Japan. The Caribbean and the North American economy have been a barometer of the global economic cycle.) For both Caribbean and North American economies, many Multi-National Corporations have made significant investments to reduce the production cost of goods and diversification benefits. Despite the benefits that could materialize, some North American countries have not been resilient through Global market shocks. Given this context, the following questions require research within the Caribbean context and current market dynamics since COVID-19. Your Manager has asked you to address the following concerns in the report 1)…arrow_forwardA key dynamic within any Multi-National Corporation (MNC) is cash and foreign exchange risk exposure. Cash management is critical and also heavily influenced by global dynamics, especially since COVID-19. Within the Caribbean and North American jurisdiction, the economic framework is tightly connected with the major Asian economies of China, the United Kingdom and Japan. The Caribbean and the North American economy have been a barometer of the global economic cycle.) For both Caribbean and North American economies, many Multi-National Corporations have made significant investments to reduce the production cost of goods and diversification benefits. Despite the benefits that could materialize, some North American countries have not been resilient through Global market shocks. Given this context, the following questions require research within the Caribbean context and current market dynamics since COVID-19. Your Manager has asked you to address the following concerns in the report 1)…arrow_forward
- Jeff Krause purchased 1,000 shares of a speculative stock in January for $1.89 per share. Six months later, he sold them for $9.95 per share. He uses an online broker that charges him $10.00 per trade. What was Jeff's annualized HPR on this investment? Jeff's annualized HPR on this investment is %. (Round to the nearest whole percent.)arrow_forwardCongratulations! Your portfolio returned 16.7% last year, 2.5% better than the market return of 14.2%. Your portfolio had a standard deviation of earnings equal to 18%, and the risk-free rate is equal to 4.4%. Calculate Sharpe's measure for your portfolio. If the market's Sharpe's measure is 0.29, did you do better or worse than the market from a risk/return perspective? The Sharpe's measure of your portfolio is (Round to two decimal places.)arrow_forwardOn January 1, 2020, Simon Love's portfolio of 15 common stocks had a market value of $258,000. At the end of May 2020, Simon sold one of the stocks, which had a beginning-of-year value of $26,900, for $31,400. He did not reinvest those or any other funds in the portfolio during the year. He received total dividends from stocks in his portfolio of $11,900 during the year. On December 31, 2020, Simon's portfolio had a market value of $246,000. Find the HPR on Simon's portfolio during the year ended December 31, 2020. (Measure the amount of withdrawn funds at their beginning-of-year value.) Simon's portfolio HPR during the year ended December 31, 2020, is %. (Round to two decimal places.)arrow_forward
- Chee Chew's portfolio has a beta of 1.27 and earned a return of 13.6% during the year just ended. The risk-free rate is currently 4.6%. The return on the market portfolio during the year just ended was 10.5%. a. Calculate Jensen's measure (Jensen's alpha) for Chee's portfolio for the year just ended. b. Compare the performance of Chee's portfolio found in part a to that of Carri Uhl's portfolio, which has a Jensen's measure of -0.25. Which portfolio performed better? Explain. c. Use your findings in part a to discuss the performance of Chee's portfolio during the period just ended.arrow_forwardDuring the year just ended, Anna Schultz's portfolio, which has a beta of 0.91, earned a return of 8.1%. The risk-free rate is currently 4.1%, and the return on the market portfolio during the year just ended was 9.4%. a. Calculate Treynor's measure for Anna's portfolio for the year just ended. b. Compare the performance of Anna's portfolio found in part a to that of Stacey Quant's portfolio, which has a Treynor's measure of 1.39%. Which portfolio performed better? Explain. c. Calculate Treynor's measure for the market portfolio for the year just ended. d. Use your findings in parts a and c to discuss the performance of Anna's portfolio relative to the market during the year just ended.arrow_forwardNeed answer.arrow_forward
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education