Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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In addition to price-weighted and value-weighted indexes, an equally weighted index is one in which the index value is computed from
the average rate of return of the stocks comprising the index. Equally weighted indexes are frequently used by financial researchers to
measure portfolio performance.
The following three defense stocks are to be combined into a stock index in January 2022 (perhaps a portfolio manager believes
these stocks are an appropriate benchmark for his or her performance):
Douglas McDonnell
Dynamics General
International Rockwell
Index return
Shares (millions)
350
450
210
Index value
%
Index return
1/1/22
a. Compute the rate of return on an equally weighted index of the three defense stocks for the year ending December 31, 2022.
Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a
percent rounded to 2 decimal places.
$ 65
=
25
54
%
Price
1/1/23
$69
b. If the index value is set to 100 on January 1, 2022, what will the index value be on January 1, 2023?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
19
43
1/1/24
$ 81
33
57
c. What is the rate of return on the index for 2023?
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
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Transcribed Image Text:In addition to price-weighted and value-weighted indexes, an equally weighted index is one in which the index value is computed from the average rate of return of the stocks comprising the index. Equally weighted indexes are frequently used by financial researchers to measure portfolio performance. The following three defense stocks are to be combined into a stock index in January 2022 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance): Douglas McDonnell Dynamics General International Rockwell Index return Shares (millions) 350 450 210 Index value % Index return 1/1/22 a. Compute the rate of return on an equally weighted index of the three defense stocks for the year ending December 31, 2022. Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. $ 65 = 25 54 % Price 1/1/23 $69 b. If the index value is set to 100 on January 1, 2022, what will the index value be on January 1, 2023? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. 19 43 1/1/24 $ 81 33 57 c. What is the rate of return on the index for 2023? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
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