Question

An index consists of the following securities and has an index divisor of 3.0. What is the price-weighted index return?

Stock	Shares O/S				Begin Price				End Price
A		3,500			$	20			$	24
B		6,000			$	15			$	10
C		4,000			$	28			$	36

Answer 1

The Average Price of the Securities at the Beginning

Average Price at the Beginning = [$20 + $15 + $28] / 3

= $63 / 3

= $21

The Average Price of the Securities at the End

Average Price at the End = [$24 + $10 + $36] / 3

= $70 / 3

= $23.33

Price-weighted index return

Price-weighted index return = [(Average Price of the Securities at the End - Average Price of the Securities at the End) / Average Price of the Securities at the End] x 100

= [($23.33 - $21.00) / $21.00] x 100

= [$2.33 / $21.00] x 100

= 11.11%

“Therefore, the Price-weighted index return = 11.11%”