Question

You are given the following information regarding prices for a sample of stocks.

a. Construct a price-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T+l.

b. Construct a value-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T+l.

c. Construct an equal-weighted index by assuming $ 2000 is invested in each stock. Compute the percentage change in the index for the period from T to T+1?

d. Briefly discuss the difference in the results for the three indexes that you obtained from (a), (b) & (c).

Answer 1

A.

Price weighted index@T: (60+20 +18) /3 = 32.67

Price weighted index@T+1: (80+35+25) /3 = 46.67

Therefore, the change in index: (46.67-32.67)/32.67*100= 42.85%

B.

Value Weighted Index :

lotAt ice 60, ooo o… | 9:57. o00 ooo5 540 o9o, o 62.5 丮 | I, oooooo! , 000, o0 o 60 1 8 OTAL8o, 00o o

T イOTA L' ,I 89, 09, 00。 o, ooo ooo-goo ooo 000, 800, o0o, oo

C. Price weighted index:

​​​​​​.

Investment at T X/Y Total Shares Price per share atT 60 20 18 StockTotal investment 2000 2000 2000 100 Value at T+1 pei. Total Shares %increase StockTotal Shares share atT 80 35 25 2640 3500 2775 75% 39% 100 Total 8915 Total increase-(8915-6000)/6000 *100-48.53%

D.

Changes under Price weighted index : 42.85%

Changes under Value Weighted Index: 47.50%

Changes under Equal Weighted Index: 48.53%