Question

In: Finance

Stock Initial Price Shares (million) ABC $25 20 LMN $50 5 PDQ $5 200 XYZ $100...

Stock Initial Price Shares (million)
ABC $25 20
LMN $50 5
PDQ $5 200
XYZ $100 1

For the above stocks

1.

a. Calculate the price-weighted average of the four stocks.

b. What is the divisor to produce the base figure market value-weighted index?

2.

Suppose the price for LMN and ABC stay the same, XYZ’s price increases to $110, and PDQ’s

falls to $2

a. Calculate the price-weighted average of the four stocks.

b. Calculate the market value-weighted index of the four stocks.

c. Find the percentage change in the price-weighted average.

d. Find the percentage change in the market value-weighted index.

e.

After

the above change, suppose XYZ has a 4-for-1 stock split, calculate the new divisor

for the price-weighted average of the four stocks.

f. Does the market value-weighted index need to be adjusted for the stock split? Why or Why

not?

Solutions

Expert Solution

You have asked so many question each with sub parts in a single post. I have addressed all the sub part of question 1 and first two sub parts of question 2. Please post the balance question separately.

Stock Initial Price Shares (mn)
P0 N0 P0 x N0
ABC                  25                    20 500
LMN                  50                      5 250
PDQ                    5                  200 1000
XYZ                100                      1 100
Total                180      1,850

Q - 1

(a)  The price-weighted average of the four stocks = 180 / 4 = 45

(b)  the divisor to produce the base figure market value-weighted index = 1850 / 1000 = 1.85

Q - 2

Stock Initial Price Shares (mn)
P0 N0 P0 x N0 P1 P1 x N0
ABC                  25                    20 500        25 500
LMN                  50                      5 250        50 250
PDQ                    5                  200 1000 2 400
XYZ                100                      1 100 110 110
Total                180      1,850      187        1,260

(a) the price-weighted average of the four stocks = 187 / 4 = 46.75

(b)  the market value-weighted index of the four stocks = 1,260 / Divisor = 1,260 / 1.85 = 681.08

jeff jeffy answered 3 hours ago
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