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Answer: 5.6%.
**Explanation:** The price return of a price-weighted index is calculated as: \[ \text{Price Return} = \left( \frac{\sum P_{\text{end}}}{\sum P_{\text{begin}}}} - 1 \right) \times 100 \] Where: - \(\sum P_{\text{end}}\) is the sum of the end-of-period prices. - \(\sum P_{\text{begin}}\) is the sum of the beginning-of-period prices. For the given data: \[ \sum P_{\text{end}} = 20.00 + 13.50 + 14.00 = 47.50 \] \[ \sum P_{\text{begin}} = 25.00 + 10.00 + 10.00 = 45.00 \] \[ \text{Price Return} = \left( \frac{47.50}{45.00} - 1 \right) \times 100 = 5.56\% \approx 5.6\% \] Option A is correct because it represents the price return of the index. Option B incorrectly represents the total return, and Option C incorrectly represents the price return for a market-capitalization weighted index.
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An analyst gathers the following data for a price-weighted index comprising three stocks:
Stock | Outstanding Shares | Beginning Price | Dividends per Share | End Price
1 | 10,000 | $25.00 | $2.00 | $20.00
2 | 40,000 | $10.00 | $0.50 | $13.50
3 | 50,000 | $10.00 | $0.00 | $14.00
The price return of the index is closest to:
A
5.6%.
B
11.1%.
C
25.2%.