The following three defense stocks are to be combined into a stock index in January...
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Accounting
The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance):
Price
Shares (millions)
1/1/16
1/1/17
1/1/18
Douglas McDonnell
420
$
63
$
67
$
84
Dynamics General
450
53
47
61
International Rockwell
250
82
71
87
a. Calculate the initial value of the index if a price-weighting scheme is used
b. What is the rate of return on this index for the year ending December 31, 2016? For the year ending December 31, 2017?
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