You Have the Following Data on Three Stocks Shown Below

question 7

Multiple Choice

You have the following data on three stocks shown below. You decide to use the data on these stocks to form an index, and 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.

• A) 16.07%
• B) 16.92%
• C) 17.76%
• D) 18.65%
• E) 19.59%

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Definitions:

Net Income

The earnings of a company after all expenses, including taxes and operational costs, have been deducted from revenues, reflecting the company's profit.

Accounts Receivable

The amount that debtors are required to pay to a company for the goods or services they have received but have not yet compensated for.

Accounts Payable

Obligations of a business to pay for goods or services that have been delivered but not yet paid for.

Inventory

The total amount of goods and materials a company holds for the purpose of resale or production, including raw materials, work-in-progress, and finished goods.