Question

In: Finance

Stock Price # Shares X Y Z X Y Z Jan. 13, 1999 25 40 30...

Stock Price # Shares
X Y Z X Y Z
Jan. 13, 1999 25 40 30 1000 2000 1000**
Jan. 14, 1999 25 42 7 1000 2000 5000
Jan. 15, 1999 27 42 8 1000** 2000 5000
Jan. 16, 1999 14 44 10 2000 2000 5000
*5:1 Split on Stock Z after Close on Jan. 13, 1999 **2:1 Split on Stock X after Close on Jan. 15, 1999
WHAT IS THE PRICE WEIGHTED INDEX ON JANUARY 13TH
What is the divisor at the beginning of January 14th
WHAT IS THE PRICE WEIGHTED INDEX ON JANUARY 15TH
What is the divisor at the beginning of January 16th
WHAT IS THE RETURN FROM JAN 13 TO JAN 16

Solutions

Expert Solution

A price-weighted index only considers the market price i.e. the index value is the sum of all the market values of stock present in that index and weights are assigned according to their respective market price upon total index value.

PRICE WEIGHTED INDEX ON JANUARY 13TH = (25+40+30)/3 = 31.667

split price after stock Z splits = Closing Price/ratio = 30/5 = 6

divisor at the beginning of January 14th = ( sum of all closing prices after split on 13th )/PRICE WEIGHTED INDEX ON JANUARY 13TH = (25+40+6)/31.667 = 2.242

PRICE WEIGHTED INDEX ON JANUARY 15TH = (27+42+8)/2.242 = 34.344

split price after stock X splits = Closing Price/ratio = 27/2 = 13.5

divisor at the beginning of January 16th = ( sum of all closing prices after split on 15th )/PRICE WEIGHTED INDEX ON JANUARY15TH = ( 13.5+42+8 )/34.444 = 1.844

PRICE WEIGHTED INDEX ON JANUARY 16TH = ( 14+44+10 )/1.844 = 36.876

RETURN FROM JAN 13 TO JAN 16 = (36.876 - 31.667)/31.667 = 16.449%

jeff jeffy answered 2 years ago
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