There are two stocks, A and B, with the following information:
src="/qa/attachment/10692496/" alt="Stocks.jpg" />
(a) Suppose the initial divisor is 1, construct a price-weighted index using the two stocks. What are the index
level I0, and I1 at time 0 and 1, respectively, and the return from t=0 to t=1?
(b) When there was a 2-for-1 stock split for stock A at t=1, what is D1? Does the index level change?
(c) If you have $200, how would you construct a portfolio that mimics the price-weighted index? What is the
return of your investment? (no split)
(d) Suppose that I0 = 100, construct a value-weighted index using the two stocks and compute its return (no
Recently Asked Questions
- Assume a par value of $1,000. Caspian Sea plans to issue a 5.00 year, semi-annual pay bond that has a coupon rate of 8.05%. If the yield to maturity for the
- Fingen's 15-year, 1000 par value bonds pay 9 percent interest annually. The market price of the bond is $1,140 and the market's required yield to maturity on a
- You are buying a previously owned car today at a price of $4,950. You are paying $750 down in cash and financing the balance for 45 months at 8.45%. What is