A benchmark market value index is comprised of three stocks. Yesterday the three stocks were priced at $20, $28, and $65. The number of outstanding shares for each is 660,000 shares, 560,000 shares, and 260,000 shares, respectively. If the stock prices changed to $24, $26, and $67 today respectively, what is the 1-day rate of return on the index? multiple choice 7.08% 3.32% 4.46% 5.26%

4.46%

Explanation:

The computation of the one day rate of return on the index is as follows;

Return = (Index Value Today - Index Value Yesterday) ÷ Index Value Yesterday

where,

Index Value Yesterday is

= ($20 × 660,000 + $28 × 560,000 + $65 × 260,000)

= $13,200,000 + $15,680,000 + $16,900,000

= $45,780,000

And,

Index Value Today is

= ($24 × 660,000 + $26 × 560,000 + $67 × 260,000)

= $15,840,000 + $14,560,000 + $17,420,000

= $47,820,000

Now the return is

= ($47,820,000 - $45,780,000) ÷ ($45,780,000)

= 4.46%

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