# paper for class

Words: 2024
Pages: 9

Chapter 2
19. Consider the three stocks in the following table. P t represents price at time t, and Q t represents shares outstanding at time t. Stock C splits two-for-one in the last period. (LO 2-2)
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 a. Calculate the rate of return on a price-weighted index of the three stocks for the first period ( t 5 0 to t 5 1). b. What must happen to the divisor for the price-weighted index in year 2? c. Calculate the rate of return of the price-weighted index for the second period ( t 5 1 to t 5 2).

a. At t = 0, the value of the index is: (\$90 + \$50 + \$100)/3 = 80 At t = 1, the value of the index is: (\$95 + \$45 + \$110)/3 =
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