Question

                                     As of January 1    &

                                     As of January 1

                        As of December 31

Share Price

Number of shares outstanding (Thousands)

Share Price

Number of Shares Outstanding (Thousands)

Stock A

$ 22

1,500

$ 28

1,500

Stock B

$ 40

10,000

$ 50

10,000

Stock C

$ 34

3,000

$ 30

3,000

The 1- year return on a market capitalization-weighted index of these stocks is closest to?

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Answer #1

Market Capitalization weighted index:

First we have to find out the market value capitalisation of the stocks at the begening and end of the year.

capitalisation at the begening of the year capitalisation at the end of the year
Stock A 33000 42000
Stock B 400000 500000
Stock C 102000 90000
535000 632000

Return on capitalization weighted index = (capital at the end of the year - capital value in the begening of the year) / Capital value at the begning of the year.

=(632000-535000)/535000

= 18.13%

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