hw1 - University of Hong Kong Department of Economics and...

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University of Hong Kong Department of Economics and Finance FINA 2802C – Investment and Portfolio Analysis First Semester: 2007-2008 Dr. Kam-Ming Wan Problem Set 1 Due Date: September 27, 2007 (Thur. by 9:30am) 1) Multi-period Return Consider the following three stocks. P t and Q t stand for price and outstanding shares at time t . Stock Z has a 3 for 1 stock split after market close on day 1. (There are only two periods, 0-1 and 1-2). a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t = 0 to t = 1). b. How does the divisor change in period 2? c. Calculate the price-weighted index for the second period (t=1 to t=2). d. Calculate market value-weighted index returns for the two periods. 2) Dow Jones Industrial Average and Stock Split Price Shares Company A B C A B C Day 1 \$12 \$23 \$52 500 350 250 Day 2 10 22 55 500 350 250 Day 3 14 46 52 500 175 a 250 Day 4 13 47 25 500 175 500 b Day 5 12 45 26 500 175 500 a split at close of day 2 b split at close of day 3

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hw1 - University of Hong Kong Department of Economics and...

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