Question

Below is a list of 3 stocks. Calculate the return based on price-weighted index, value-weighted index, and equal-weighted index. (Assume you invested yesterday).

Stock	Price yesterday	Price today	Market Cap (billions)
JPM	$116	$115	362
WFC	$49	$48	214
BAC	$28	$29	259

Answer 1

Calculating returns on each stock, we get,

JPM= (115/116)-1= -0.862%

WFC= (48/49)-1= -2.04%

BAC= (29/28)-1= 3.5714%

Price Weighted Index:

Based on Price weighted Index, return will be the weighted average of prices with returns.

Return= (116/193)*(-0.862%)+(49/193)*(-2.04%)+(28/193)*(3.5714%)= -0.518%

Based on Value weighted Index, return is the weighted average of value with returns.

Return= (116*362)/((116*362)+(49*214)+(28*259))*(-0.862%)+(48*214)/((116*362)+(49*214)+(28*259))*(-2.04%)+(28*259)/((116*362)+(49*214)+(28*259))*(3.5714%)= -0.5307%

Based on equal weighted index,

Return= (1/3)*(-0.862%)+(1/3)*(-2.04%)+(1/3)*(3.5714%)= 0.223%