Question

One year ago, the market capitalization of the portfolio of stocks in the PBP (Permian Basin Petroleum) Index was $532 million. Today, the market cap of this portfolio is $1653 million. Last year, the PBP index was at 2,175.00. Applying the market cap approximation discussed in the lecture, calculate the current value of the PBP index.

Answer 1

Answer :

When Market capitalization of the portfolio was $532 million, Index was = 2175

Today market capitalization of the portfolio is $1653 million, so index would be =  

(2175 / 532) X 1653 = 6758.03

Note: we use Sensitivity analysis technique to determine the value of PBP Index.

Alternatively, we can solve this question,

Change in Portfolio of stock in one year = (1653-532)/532 = 210.71428%

Hence if we increased PBP index with the same proportion, we get :

2175 X (1+210.71428%) = 6758.036