Question: Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits

Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two for one in the last period.

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).

0'00 2 555 P-945 1-000 Q-000 122 1-550 P-941 Q-000 122 0-000 P-950 ABC

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a At t 0 the value of the index is 90 50 1003 80 At t 1 the value of the index is 95 45 1103 8333... View full answer

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