A Benchmark Market Value Index Is Comprised of Three Stocks

question 60

Multiple Choice

A benchmark market value index is comprised of three stocks. Yesterday the three stocks were priced at $12, $20, and $60. The number of outstanding shares for each is 600,000 shares, 500,000 shares, and 200,000 shares, respectively. If the stock prices changed to $16, $18, and $62 today respectively, what is the 1-day rate of return on the index?

• A) 5.78%
• B) 4.35%
• C) 6.16%
• D) 7.42%

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Definitions:

NPV

Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. It is used in capital budgeting to analyze the profitability of an investment.

Cash Flows

Cash flows refer to the net amount of cash and cash-equivalents being transferred into and out of a business, crucial for assessing the financial health and liquidity of a company.

MIRR

MIRR (Modified Internal Rate of Return) adjusts the standard IRR calculation to account for differences in reinvestment rates and project financing costs.

Mutually Exclusive

Refers to events or choices that cannot occur or be selected at the same time.