Question

# Suppose that a stock index is constructed with three stocks priced at \$7, \$43, and \$56....

Suppose that a stock index is constructed with three stocks priced at \$7, \$43, and \$56. The number of outstanding shares for each is 500,000 shares, 405,000 shares, and 553,000 shares, respectively. Today the prices for each stock are changed to \$14, \$44, and \$52 and the number of outstanding shares for each are changed to 250,000 shares, 405,000 shares and 553,000 shares today, what is the price weighted index value today if the index yesterday was 10,500?

 Yesterday Stock Prices (\$) No.of shares Market Value 7 5,00,000 35,00,000 43 4,05,000 17,415,000 56 5,53,000 30,968,000 Total 51,883,000
 Today Stock Prices (\$) No.of shares Market Value 14 2,50,000 35,00,000 44 4,05,000 17,820,000 52 5,53,000 28,756,000 Total 50,076,000

Now, yesterday when market capitalisation was \$ 51,883,000, index was 10,500. Today, market capitalisation is \$ 50,076,000. Change % = (50,076,000 - 51,883,000) / 51,883,000 * 100 = - 3.5%. Hence, index today = 10,500 - 3.5% = 10,132.50.

The price weighted index value today is 10,132.50.

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