Finance Assignment | Professional Writing
Question 4 (13 marks) Consider the following three stocks constitute an index. Pt represents price at time t and Qt represents no. of shares outstanding at time t. Pi 110 A B C Po 100 5 10 Qo 100 20,000 1,000 Q1 100 20,000 1,000 | a) Compute rate of return of each stock at time 1.
(3 marks) b) Compute percentage change of the index value at time 1 given it is (i) value-weighted index and (ii) price-weighted index. (3 marks) c) Using answers in part (a) and (b), explain the different percentage changes of the index value by using different weighting schemes. (4 marks) d) Assuming price-weighted scheme is adopted, compute the new divisor if there is two-for -one stock split for Stock B at the end of time 1. (3 marks)
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