Question

Problem 5-4 Price-Weighted Index (LO4, CFA2)

Assume the following information concerning two stocks that make up an index. What is the price-weighted return for the index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

					Price per Share
	Shares Outstanding				Beginning of Year				End of Year
Kirk, Inc.		36,000			$	43			$	47
Picard Co.		26,500				74				83

RETURN __________ %

Answer 1

Market capitalization of the index at the beginning of the year = Nos. of shares of Kirk, Inc. x Price per share at the beginning of the year + Nos. of shares of Picard Co. x Price per share at the beginning of the year = 36,000 x 43 + 26,500 x 74 =  $  3,509,000

Market capitalization of the index at the end of the year = Nos. of shares of Kirk, Inc. x Price per share at the end of the year + Nos. of shares of Picard Co. x Price per share at the end of the year = 36,000 x 47 + 26,500 x 83 =  $ 3,891,500

Hence, the price-weighted return for the index = 3,891,500 / 3,509,000 - 1 = 10.90%