Question

Explain the difference between Price-Weighted Index and Value-Weighted Index.

Answer #1

ANS : Price-weighted Index is an index where the member companies are weighted in propoortion to their price per share, rather than the number of shares outstanding, market capitalisation etc. It gives greater weight to stock with higher prices in terms of their contribution to the index value & the change in the Index.

Value-weighted Index is also called Capitalisation-weighted Index. It is a Index where components are weighted according to the total market value of their outstanding shares.

In value-weighted Index, ABC would have more impact in the movement of index, But in case of price-weighted it would have less impact as its price is lower.

What are examples and advantages of a price-weighted stock index
and a market value-weighted stock index?

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

In addition to price-weighted and value-weighted indexes, an
equally weighted index is one in which the index value is computed
from the average rate of return of the stocks comprising the index.
Equally weighted indexes are frequently used by financial
researchers to measure portfolio performance.
The following three defense stocks are to be combined into a
stock index in January 2016 (perhaps a portfolio manager believes
these stocks are an appropriate benchmark for his or her
performance):
Price
Shares
(millions)...

Why do both the chain-weighted index for GDP and the CPI
overstate actual price increases?
Explain the economic concept of convergence.
Define the "consumption function."
List and briefly describe the five factors of production.
What is the opportunity cost of investing $10,000 of your own
money in a business you wish to start?
Explain the difference between a change in quantity demanded and
a change in demand.

What is the difference between the price index and the rate of
inflation?
What is deflation? Disinflation?

Why is there a difference between the equal and value weighted
institutional holding of U.S. equities?

You construct a price-weighted index of 33 stocks. At the
beginning of the day, the index is 9,241.90. During the day, 32
stock prices remain the same, and 1 stock price increases $4.10. At
the end of the day, your index value is 9,267.86. What is the
divisor on your index? (Do not round intermediate calculations.
Round your answer to 8 decimal places.)

5. A price-weighted index has 3 stocks: A, B and C. Their price
at the start of the index was $35, $48 and $90.
What is the initial divisor if the index start with a value of
100?
By the end of the first year, the price of the 3 stocks is $40,
$52 and $83 respectively. How much has the index gone up?
If stock C has a 3-for-1 split, what would be the new index
value after one...

Match the description to the correct index.
1. An price-weighted average of 30 stocks.
2. The best measure of overall market performance.
3. A market-value weighted index heavily weighted in technology
stocks.
Dow Jones Industrial Average
S&P 500
Nasdaq

The Hydro Index is a price weighted stock index based on the 4
largest boat manufacturers in the nation. Consider the four stocks
in the following table. Pt represents price at time t,
and Qt represents shares outstanding at time t. (Please pay close
attention to stock split)
P0
Q0
P1
Q1
P2
Q2
A
80
200
90
200
98
200
B
50
300
40
300
50
300
C
90
200
110
200
115
200
D
100
100
90
100...

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