Question

Deepa Chungi wishes to develop an​ average, or​ index, that can be used to measure the general behavior of stock prices over time. She has decided to include 6 closely​ followed, high-quality stocks in the average or index. She plans to use August​ 15, 1987, her​ birthday, as the base and is interested in measuring the value of the average or index on August​ 15, 2013, and August​ 15, 2016. She has found the closing prices for each of the 6​ stocks, A through​ F, at each of the 3 dates and has calculated a divisor that can be used to adjust for any stock​ splits, company​ changes, and so on that have occurred since the base​ year, which has a divisor equal to 1.00.

a. Using the data given in the​ table,

LOADING...

​, calculate the market​ average, using the same methodology used to calculate the Dow​ averages, at each of the 3

dateslong dash—August

​15, 1987,​ 2013, and 2016.

b. Using the data given in the table and assuming a base index value of 10 on August​ 15, 1987, calculate the market​ index, using the same methodology used to calculate the​ S&P indexes, at each of the 3 dates.

c. Use your findings in parts a and b to describe the general market

conditionlong dash—bull

or

bearlong dash—that

existed between August​ 15, 2013, and August​ 15, 2016.

d. Calculate the percentage changes in the average and index values between August​ 15, 2013, and August​ 15, 2016. Why do they​ differ?

tock	August​ 15, 2016		August​ 15, 2013		August​ 15, 1987
A	​$46.77		​$39.27		​$49.01
B	​$36.43		​$36.4836.48		​$9.26
C	​$20.88		​$23.72		​$6.29
D	​$58.01		​$60.53		​$25.08
E	​$81.35		​$70.09		​$45.33
F	​$31.06		​$29.11		32.28
Divisor	0.68		0.740		1.00

Answer 1

			P1	P2	P3
		Stock	Price on August​ 15, 2016	Price on August​ 15, 2013	Price on August​ 15, 1987
	a	A	$46.77	$39.27	$49.01
	b	B	$36.43	$36.48	$9.26
	c	C	$20.88	$23.72	$6.29
	d	D	$58.01	$60.53	$25.08
	e	E	$81.35	$70.09	$45.33
	f	F	$31.06	$29.11	$32.28
	S=a+b+c+d+e	SUM	$274.50	$259.20	$167.25
	D	Divisor	0.68	0.74	1
	N=S/D	Market Average	403.68	350.27	167.25
		Market Average on Aug.15,1987	167.25
		Market Average on Aug.15,2013	350.27
		Market Average on Aug.15,2016	403.68
	b	Base Index=10
		Market index on Aug.15,1987	16.73	(167.25/10)
		Market index on Aug.15,2013	25.92	(259.20/10)
		Market index on Aug.15,2016	27.45	(274.50/10)
	c	General Market Condition(2013-2016)	BULL
		Percentage Change of market Average	15.25%	(403.68/350.27)-1
		Percentage Change of market Index	5.90%	(27.45/25.92)-1
		The difference is because in Market index divisor does not change