Problem:
You have accumulated data on three stocks (see below). You have decided to use the information on these stocks to form an index. You want to find the average earned rate of return for 2011 on your index. If you follow the averaging procedure used to calculate the S&P 500 Index return, what would your index's rate of return be?
Hints: Rates of return are based on beginning-of-year prices, and the S&P Index is weighted by market values of the companies in the index.
Stock Dividend Beginning Price Ending Price Sharing Outstanding (millions)
A $1.50 $30.00 $32.00 5.00
B $2.00 $28.50 $27.00 4.50
C $0.75 $20.00 $24.00 20.00