Question

You are given the following information regarding prices for a sample of stocks.

			PRICE
Stock	Number of Shares		T		T + 1
A	3,800,000		$68		$88
B	12,000,000		24		34
C	29,000,000		19		27

1. Construct a price-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T + 1. Do not round intermediate calculations. Round your answer to two decimal places.

     %

2. Construct a value-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T + 1. Do not round intermediate calculations. Round your answer to two decimal places.

     %

Answer 1

a).

Price weighted Index is calculated as the average of the prices.

Price weighted Index at T= (68+24+19)/3= 37

Price weighted Index at T1= (88+34+27)/3= 49.67

Percentage Change= (49.67-37)/37= 34.23%

b).

Value weighted Index is calculated as the weightage of the Prices.

Value weighted Index= (3800000*68)+(12000000*24)+(29000000*19)= 1097400000

Value weighted Index at T1= (3800000*88)+(12000000*34)+(29000000*27)= 1525400000

Percentage Change= (1525400000-1097400000)/1097400000= 39.00%