Question

A benchmark index has three stocks priced at $40, $63, and $73. The number of outstanding shares for each is 435,000 shares, 575,000 shares, and 723,000 shares, respectively. If the market value weighted index was 950 yesterday and the prices changed to $40, $59, and $77 today, what is the new index value? Multiple Choice 945 950 955 940

Answer 1

let us consider yesterday's total market value;

stock	price	number of shares	price * number of shares
1	$40	435,000	($40*435,000)=>17,400,000
2	$63	575,000	($63*575,000)=>36,225,000
3	73	723,000	($73*723,000)=>52,779,000
		Total market value	106,404,000

today's market value;

stock	price	number of shares	price* number of shares
1	$40	435,000	17,400,000
2	59	575,000	33,925,000
3	77	723,000	55,671,000
		total market value	106,996,000

todays value of index = yesterday index / yesterday market value* todays market value

=>950/106,404,000 * 106,996,000

=>955.