Question
In: Finance
Today Stock A is worth $25 and has 1000 shares outstanding. Stock B costs $30 and...
Today Stock A is worth $25 and has 1000 shares outstanding. Stock B costs $30 and has 500 shares outstanding. Stock C is priced at $50 per share and has 1200 shares outstanding. If tomorrow Stock A is priced at $22, Stock B at $35, and Stock C is worth $48, what would the value-weighted index amount equal? (The index has a base period value of 100.)
Solutions
Expert Solution
| Total Portfolio value = price of Stock A*Shares of Stock A + price of Stock B*Shares of Stock B + price of Stock C*Shares of Stock C |
| =25*1000+30*500+50*1200 |
| =100000 |
| Weight of Stock A = price of Stock A*Shares of Stock A/Total Portfolio Value |
| = 25000/100000 |
| =0.25 |
| Weight of Stock B = price of Stock B*Shares of Stock B/Total Portfolio Value |
| = 15000/100000 |
| =0.15 |
| Weight of Stock C = price of Stock C*Shares of Stock C/Total Portfolio Value |
| = 60000/100000 |
| =0.6 |
Return A
| rate of return/HPR = ((Ending price+Dividend)/Beginning price-1) |
| =((22+0)/25-1) |
| =-12% |
Return B
| rate of return/HPR = ((Ending price+Dividend)/Beginning price-1) |
| =((35+0)/30-1) |
| =16.67% |
Return C
| rate of return/HPR = ((Ending price+Dividend)/Beginning price-1) |
| =((48+0)/50-1) |
| =-4% |
| return of Portfolio = Weight of Stock A*return of Stock A+Weight of Stock B*return of Stock B+Weight of Stock C*return of Stock C |
| return of Portfolio = -12*0.25+16.67*0.15+-4*0.6 |
| return of Portfolio = -2.8995 |
New index value = old index value*(1+portfolio return)
=100*(1-0.028995) = 97.1
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