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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

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 2013 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance):

  Shares
(millions)
  1/1/13   1/1/14   1/1/15
Douglas McDonnell 535     89     94     109
Dynamics General 450     70     65     79
International Rockwell 230     99     88     105

a. Compute the rate of return on an equally weighted index of the three defense stocks for the year ending December 31, 2013. (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.) Index return %

b. If the index value is set to 100 on January 1, 2013, what will the index value be on January 1, 2014? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Index value

c. What is the rate of return on the index for 2014? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.) Index return %

Asked on 31 Dec 2019

Sep 08 2020 Read more Less More

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