The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance). Assume the index is scaled by a factor of 10 million; that is, if the total value of all firms in the market is $5 billion, the index would be quoted as 500. Price Shares (millions) 1/1/16 1/1/17 1/1/18 Douglas McDonnell 190 $ 105 $ 111 $ 124 Dynamics General 450 68 64 78 International Rockwell 330 97 86 102 a. Calculate the initial value of the index if a value-weighting scheme is used.

Index Value = $8256.00 ± 1

Explanation:

Given

Price

Shares (millions) 1/1/16 1/1/17 1/1/18

Douglas McDonnell 190 $ 105 $ 111 $ 124

Dynamics General 450 68 64 78

International Rockwell 330 97 86 102

Scale factor = 10 million

The index value using the weighing scheme is the value at 1/1/16

This is calculated by taking into consideration, only Colin 1/1/16.

This is given as;

Price

Shares (millions) 1/1/16

Douglas McDonnell 190 $ 105

Dynamics General 450 68

International Rockwell 330 97

We're left with 2 columns; the shares and the 1/1/16 column

The index value is calculated by multiplying the shares column by the date column divided by the scale factor

So, index value = ((190 * $105) + (450 * $68) + (330 * $97))/10

Index Value = $8256.00 ± 1

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answer; microeconomics;