In addition to price-weighted and value-weighted indexes, an equally weighted index isone in which the index value is computed from the average rate of return of the stockscomprising the index. Equally weighted indexes are frequently used by financialresearchers to measure portfolio performance.The following three defense stocks are to be combined into a stock index in January2010 (perhaps a portfolio manager believes these stocks are an appropriate benchmarkfor his or her performance):PriceShares(millions)1/1/101/1/11 1/1/12Douglas360 $65$69$ 83McDonnellDynamics450524660GeneralInternationalRockwell170817086a. Compute the rate of return on an equally weighted index of the three defense stocksfor the year ending December 31, 2010. (Negative amounts should be indicated by aminus sign. Round your answer to 2 decimal places. Omit the "%" sign in yourresponse.)Index return%b. If the index value is set to 100 on January 1, 2010, what will the index value be onJanuary 1, 2011? (Round your answer to 2 decimal places.)Index valuec. What is the rate of return on the index for 2011? (Round your answer to 2 decimalplaces. Omit the "%" sign in your response.)Index return%

To compute the rate of return on an equally weighted index of the three defense stocks for the year…

Answered: In addition to price-weighted and…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 1P

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The following three defense stocks are to be combined into a stock index in January 2019 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance): Price Shares(millions) 1/1/19 1/1/20 1/1/21 Douglas McDonnell 185 $ 69 $ 72 $ 85 Dynamics General 450 47 40 54 International Rockwell 270 76 65 79 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, 2019? For the year ending December 31, 2020? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
The following three defense stocks are to be combined into a stock index in January 2019 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance). Assume the index is scaled by a factor of 10 million; that is, if the total value of all firms in the market is $5 billion, the index would be quoted as 500. Price Shares(millions) 1/1/19 1/1/20 1/1/21 Douglas McDonnell 210 $ 94 $ 97 $ 111 Dynamics General 450 36 31 45 International Rockwell 350 65 54 68 a. Calculate the initial value of the index if a value-weighting scheme is used. (Round your answer to 2 decimal places.) b. What is the rate of return on this index for the year ending December 31, 2019? For the year ending December 31, 2020? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
You are given the following information regarding prices for stocks of the followingfirms: PRICE Stock Number of Shares T T+ 1 ScotBank Ltd. 1,000,000 60 80 Jetvan Ltd 10,000,000 20 35 PriceLife Ltd. 30,000,000 18 25 i. Construct a price-weighted index for these three stocks and compute the percentagechange in the series for the period from T to T +1. ii. Construct a market-value-weighted index for these three stocks and compute thepercentage change in the series for the period from T to T +1. iii. Based on your answer above, which of these indexes BEST illustrate the movementon the stock market.
Using the data in the chart, calculate the first-period rates of return on the following indexes of the three stocks: A market-value-weighted index. An equally weighted index. stocks 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 (Pt represents price at time t, and Qt represents shares outstanding at time t.)
An analyst wants to evaluate Portfolio X, consisting entirely of U.S. common stocks, using both the Treynor and Sharpe measures of portfolio performance. The following table provides the average annual rate of return for Portfolio X, the market portfolio (as measured by the Standard and Poor’s 500 Index), and U.S. Treasury bills (T-bills) during the past eight years. Rate Annual Averageof Return STANDARD DEVIATION OF RETURN BETA Portfolio X 10 13 0.40 S&P 500 12 10 1.00 T-bills 7 n/a n/a n/a = not applicable Calculate both the Treynor measure and the Sharpe measure for both Portfolio X and the S&P 500. Round your answers for the Treynor measure to one decimal place and for the Sharpe measure to three decimal places. Treynor measure Sharpe measure Portfolio X 7.5 S&P 500 5
The data below describes a three-stock financial market that satisfies the single index model. Stock Capitalization Beta Mean Excess Return Standard Deviation A £3,000 1.0 10% 40% B £1,940 0.2 2% 30% C £1,360 1.7 17% 50% The standard deviation of the market index portfolio is 25%. What is the mean excess return of the index portfolio? What is the covariance between stock A and stock B? What is the covariance between stock B and the index? Break down the variance of stock B into its systematic and firm specific components.
An analyst wants to evaluate Portfolio X consisting entirely of US common stocks, using both the Treynor and Sharpe measures of the portfolio performance. The following table provides the average annual rate of return for the portfolio X the market portfolio (as measured by the Standard & Poor's 500 index) and US Treasury billds (Tbills) during the past eight years Average Return Standard deviation Beta Portfolio X 10% 18% 0.6 S & P 500 12% 13% 1 T bills 6% n/a n/a a. Calculate both the Treynor measure and the Sharpe measure for both Portfolio X and the S&P 500. Briefly explain whether portfolio X underperformed, equalled, or outperformed the S&P 500 on a risk-adjusted basis using both the Treynor measure and the Sharpe measure. b. Based on the performance of…
The following are the end-of-month prices for both the Standard & Poor's 500 Index and Nike's common stock. a. Using the data in the popup window, calculate the holding-period returns for each of the months. b. Calculate the average monthly return and the standard deviation for both the S&P 500 and Nike. c. Develop a graph that shows the relationship between the Nike stock returns and the S&P 500 Index. (Show the Nike returns on the vertical axis and the S&P 500 Index returns on the horizontal axis.) d. From your graph, describe the nature of the relationship between Nike stock returns and the returns for the S&P 500 Index.
According to the explanation of the attached picture in my textbook is that " price-weighted index (e.g., Dow Jones) is computed by summing the prices of the individual stocks, then dividing by a divisor to determine the base index value. The divisor, such as 100, relates the starting value and is adjusted as stocks split or composition of the index is changed" please illustrate the calculation of stock market indexs and market value-weighted index correlatively with the table in picture and the explanation below the table to make me understand why divisor is 100, what's the core concept in calculating both price-weighted index and market value-weighted index in the table
1.You are given the following information regarding prices for a sample of stocks. PRICE STOCK NUMBER OF SHARES T T +1 A 1,000,000 60 80 B 10,000,000 20 35 C 30,000,000 18 25 a.Construct a price-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T + 1. b.Construct a value-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T + 1 c.Briefly discuss the difference in the results for the two indexes.
The figures below show plots of monthly rates of return on three stocks versus those of the market index. The beta and standard deviation of each stock is given beside the plot. Which stock is safest for a diversified investor? Which stock is safest for an undiversified investor who puts all her money in one of these stocks? Consider a portfolio with equal investments in each stock. What would be this portfolio’s beta? Consider a well-diversified portfolio composed of stocks with the same beta and standard deviation as Ford. What are the beta and standard deviation of this portfolio’s return? The standard deviation of the market portfolio’s return is 20%. Use the capital asset pricing model to estimate the expected return on each stock. The risk-free rate is 4%, and the market risk premium is 8%.
Suppose that you would like to create composite indexes from three stocks: stk1, stk2, stk3. Their stock prices (Pt) and total shares outstanding (Qt) from day 0 to day 1 are shown as follows: stk3 splits two-for-one in day 1. P0 Q0 P1 Q1 stk1 40 100 50 100 stk2 50 200 50 200 stk3 60 150 50 300 Which answer is the closest value to the rate of return on a value-weighted index of the three stocks? A. 20% B. 25% C. 30% D. 35%

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