Question

You are given the following information concerning two stocks that make up an index.

Assume the value-weighted index level was 280.98 at the beginning of the year. What is the index level at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

					Price per Share
	Shares Outstanding				Beginning of Year				End of Year
Kirk, Inc.		40,000			$	64			$	70
Picard Co.		35,500				114				122

	Index level

Answer 1

Given the number of outstanding shares and price data for the following corporations,

	shares outstanding	Beginning of the year	End of the year
Kirk., Inc	40,000	64	70
Picard Co.	35,500	114	122

Beginning index value = 280.98

The formula to calculate Ending index value is given by the formula,

Ending index value =

(Total Market cap. of ending value/ Total Market cap. of beginning value)x Beginning index value

Market capitalization is the product of number of shares outstanding and its share price.

Total Market capitalization at the end of the year = (40000*70+35500*122)

= 2800000 + 4331000

= 7131000

Total Market capitalization at the beginning of the year = (40000*64+35500*114)

= 2560000 + 4047000

= 6607000

Substituting these value, we get

Ending index value = (7131000/ 6607000)x 280.98

= 1.0793 x 280.98

= 303.26

Therefore, ending index value is 303.26