Question

You are given the following information concerning two stocks that make up an index. What is the percentage value-weighted return for the index?

	Shares Outstanding	Beginning of Year Price	End of year Price
Kirk, Inc.	46,000	$83	$90
Picard Co.	60,000	40	52

Answer 1

Beginning value = [($83 × 46,000) + ($40 × 60,000)] / 2 = $3,109,000
Ending value = [($90 × 46,000) + ($52 × 60,000)] / 2 = $3,630,000
Return = ($3,630,000-$3,109,000) / $3,109,000 = 16.76%
Note you could also solve the problem as:
Beginning value = ($83 × 46,000) + ($40 × 60,000) = $6,218,000
Ending value = ($90 × 46,000) + ($52 × 60,000) = $7,260,000
Return = ($7,260,000 – 6,218,000) / $6,218,000 = 16.76%
The interpretation in this case is the percentage increase in the market value of the market.