Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text: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). Suppose that Douglas McDonnell shareholders approve a 2-for-1
stock split on January 1, 2020.
Douglas McDonnell
Dynamics General
International Rockwell
New divisor
2.198
Rate of return
Shares
(millions)
345
450
310
1/1/19
$ 94
66
95
What is the new divisor for the index? (Do not round intermediate calculations. Round your answer to 3 decimal places.)
18.70 %
Price
1/1/20
$ 97
61
84
1/1/21
$109
75
101
b. Calculate the rate of return on the index for the year ending December 31, 2020, if Douglas McDonnell's share price on January 1,
2021, is $34.50 per share. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
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