Question

QUESTION 1 A market value weighted index has three stocks in it, call them A, B, and C, priced at 32, 58, and 83 per share. Each firm has 455, 143 and 155 thousand shares outstanding, res pective ly. The value of the index at that time is 742. Over the course of the next quarter, the prices of the three stocks change to 40, 82, 55, respectively. What is the new value of the index? Enter answer accurate to two decimal places QUESTION 2 A market value weighted index has three stocks in it, call them A, B, and C, priced at 82, 63, and 47 per share. Each firm has 376, 159 and 146 thousand shares outstanding, respective ly. The value of the index at close of trading day is 944. At this time, the index decides to remove stock C from the index, and in its place to insert stock D. Stock D has a closing price of $57 per share, and 191 thousand shares outstanding. What is the new value of the index divisor, after the substitution? Enter answer accurate to two decimal places. QUESTION 3 An investor buys a corporate bond fund that pays an interest rate of 5.91 percent. If the investor pays a marginal tax rate of 39.08 percent, what is his after-tax yield? Enter answer in percents, accurate to two decimal places QUESTION 4 A municipal bond yields 8.45 percent. An investor in a marginal 33.8 percent tax bracket is comparing this bond with a similar corporate bond. What is the equivalent taxable yield? Enter answer in percents, accurate to two decimal places

Answer 1

Solution :-

Value of Old Portfolio
Stock	Price	Shares ( in 000's)	Value
A	32	455	14560
B	58	143	8294
C	83	155	12865
	Total Value of Portfolio		35719

Value of New Portfolio
Stock	Price	Shares ( in 000's)	Value
A	40	455	18200
B	82	143	11726
C	55	155	8525
	Total Value of Portfolio		38451

Value of Old Index = 742

Now new and old market weighted index relationship is

Value of New Index / Value of Old Index = Value of New Portfolio / Value of Old Portfolio

= Value of New Index / 742 = 38451 / 35719

= Value of New Index = 38451 * 742 / 35719 = 798.75

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