Question

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%

Answer 1

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%