Question

You are given the following information concerning two stocks that make up an index.     

					Price per Share
	Shares Outstanding				Beginning of Year				End of Year
Kirk, Inc.		36,000			$	74			$	82
Picard Co.		33,500				115				123

a. Assume that you want to build a price-weighted index including the two stocks. Please calculate the beginning index and the end index.  (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Beginning Index:

End Index:

b. What is the return for the price-weighted index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Index Return: %

c. Assume that you want to rebuild a value-weighted index with the index value at the beginning of the year equal to 100. What is the index level at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.

Index Level at the end:

d. What is the return of the value-weighted index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Index Return: %

e. Assume the value-weighted index has been existing for 15 years and the index level happened to be 234.98 at the beginning of the year. What is the index level at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.

Index Level at the end:

f. What is the return of this existing value-weighted index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Index Return: %

Answer 1

2 a) beginning value of price weighted index = 74+115 - 945 Ending value of price weighted index: 82 + 123 - 1025 b) Return = 102.5-94.5 = 0.084656 = 8.47% 2 945 () Shares 36000 33500 hu Beg of year prace End of year prece 115 3123 Market cap Machet cap 2664000 2952000 a 3852500 Beg no 41205 Pς

Beginning weigh 40.88P 59:12 wp End Weight 41.74% 58.267 Weight = market cap Total machet cap Beginmy value 40.88% x Tht 59.1218115 - 30.2512 + 67.988 - 9.2392 Ending value: 41.747. x 82 + 58.26% * 123 ↑ 34.2268+ 71.6598 e 105.8866 Change = 7.781. If Begining index value=100 Then ending value = 1.0778 x 100 = 107.78 5 (d) Return as can be seen above = 7.78%