The four stocks below are part of an index. Use the information below: a. Compute a price-weighted index by adding their prices at time t and time t 1 1. What is the percentage change in the index? b. Compute a value-weighted index by adding their market values at time t and time t 1 1. What is the percentage change in the index? c. Why is there a difference between your answers to (a) and (b)? # OF SHARES PRICE AT PRICE AT STOCK OUTSTANDING TIME (t ) TIME ( t 1 1) Eeny 100 10 15 Meeny 50 20 22 Miney 50 30 28 Moe 20 40 42
I have answered the question below
Please up vote for the same and thanks!!!
Do reach out in the comments for any queries
Answer:
1. Price weight index at time t = (10+20+30+40)/4 =25 At t+1 = (15+22+28+42)/4 =107/4 =26.9 Percentage change in index = (26.9-25)/25 =7.6%
2. At time t= ((100×10)+(50×20)+(50×30)+(20×40))/(100+50+50+20) =4300/120 =35.84 At t+1 time =((100×15)+(50×22)+(50×28)+(20×42))/(100+50+50+20)) =40.33 % change = (40.85-35.84)/35.84 =12.53%
3 Difference is because of in value weighted index we are taking market capitalization of the stocks movement and in price weighted index we are taking only price movement.
Get Answers For Free
Most questions answered within 1 hours.