# Rate of return on stock stock index

• Jul 14th 2010, 09:45 AM
realace360
Rate of return on stock stock index
Hello, I am stuck on this problem for my investments class. I do not know where to start. Can someone help me solve this problem for me so I can use this as an example to figure similar problems in the end of chapter? I would really appreciate the help. I attached a word document to this with the same problem, if that would help. Thanks

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.

P0 Q0 P1 Q1 P2 Q2
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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 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 of the price-weighted index for the second period (t=1 to t=2)
D.What is the market value - weighted index
E.What is an equally weighted index?