Question

# Consider the following information: Shares Outstanding Price per share Beginning of the year End of the...

Consider the following information:

 Shares Outstanding Price per share Beginning of the year End of the year ABC Inc. 20, 000 shares \$15 \$20 MMM Inc. 10,000 shares \$70 \$80

What is the value-weighted return for the index?

 A. 5% B. 10% C. 15% D. 18% E. 20%

For calculating the value-weighted return for the index, the value at the beginning and the value at the end of the year have to be calculated.

Value at the beginning of the year = (20,000 x \$15) + (10,000 x \$70) = \$300,000 + \$700,000 = \$1,000,000

Value at the beginning of the year is \$1,000,000

Value at the end of the year = (20,000 x \$20) + (10,000 x \$80) = \$400,000 + \$800,000 = \$1,200,000

Value at the end of the year = \$1,200,000

Value weighted index return = {(Value at end - Value at beginning) / Value at beginning} x100

= {(\$1,200,000 - \$1,000,000) / \$1,000,000} x 100

= (\$200,000 / \$1,000,000) x 100

= 0.2 x 100

= 20%

Answer is option E i.e. 20%

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