In addition to price-weighted and value-weighted indexes, an equally weighted index is one in which the index value is computed from the average rate of return of the stocks comprising the index. Equally weighted indexes are frequently used by financial researchers to measure portfolio performance.

a. Using the following information, compute the rate of return on an equally weighted index of the three defense stocks for the year ending December 31, 2013. (Information: Douglas McDonnell: shares (millions) 340, Price 1/1/13 $103, 1/1/14 $106, 1/1/15 $118. Dynamics General: shares (millions) 450, Price 1/1/13 $45, 1/1/14 $39, 1/1/15 $53. International Rockwell: shares (millions) 410, Price 1/1/13 $74, 1/1/14 $63, 1/1/15 $79.

b. If the index value is set to 100 on January 1, 2013, what will the index value be on January 1, 2014? What is the rate of return on the index for 2014?