Question

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?

Answer 1

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.