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  • Chapter 2 Essentials of Investment by Bodie, Kane, and Marcus

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    Muhammad Rizki Lukmiardi
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    The document contains three examples calculating rates of return: 1) Part a calculates the rate of return between two periods t=0 and t=1 as 4.16% based on the average price of three stocks. 2) Part b shows a stock split for one stock that divides the price by 2.34 to maintain the same overall market value. 3) Part c explains that the rate of return is zero between periods for two stocks that did not change price, while the third stock's price changed due to a stock split.

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    Some of answers for chapter 2 of Essentials of Investment by Bodie, Kane, and Marcus

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    The document contains three examples calculating rates of return: 1) Part a calculates the rate of return between two periods t=0 and t=1 as 4.16% based on the average price of three stocks. 2) Part b shows a stock split for one stock that divides the price by 2.34 to maintain the same overall market value. 3) Part c explains that the rate of return is zero between periods for two stocks that did not change price, while the third stock's price changed due to a stock split.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    15 views3 pages

    Chapter 2 Essentials of Investment by Bodie, Kane, and Marcus

    Uploaded by

    Muhammad Rizki Lukmiardi
    The document contains three examples calculating rates of return: 1) Part a calculates the rate of return between two periods t=0 and t=1 as 4.16% based on the average price of three stocks. 2) Part b shows a stock split for one stock that divides the price by 2.34 to maintain the same overall market value. 3) Part c explains that the rate of return is zero between periods for two stocks that did not change price, while the third stock's price changed due to a stock split.

    Copyright:

    © All Rights Reserved
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    of 3

    a.

    t=0 (90+50+100)/3 = 80
    t=1 (90+45+110)/3 = 83.33

    rate of return = (83.33/80)-1 = 4.16%

    b. before stock split = (95+45+110)/3= 83.33


    after stock split = (95+45+55)/d = 83.33

    195/d = 83.33
    divisor = 2.34

    c. P1 P2
    95 95
    45 45
    110 55 *stock split

    Rate of return is zero since the hasn't change from P1 to P2. As for Stock C the price change because of stock sp
    e change because of stock split
    a. Total Market Value at t=0
    (90x100) + (50x200) + (200x100) = 39,000

    Total Market Value at t=1


    (95x100) + (45x200) + (110x200) = 40,500

    rate of return = (40.500/39.000)-1= 3.85%

    b. Return Stock A (95/90) -1 = 5.56%


    Return Stock B (45/50) -1 = -10%
    Return Stock C (110/100)-1 = 10%

    equally weighted index = (5.56% + (-10%) +10%)/3 = 1.85%

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