Question

1. Assume the following information concerning two stocks that make up an index. What is the value-weighted return for the index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

					Price per Share
	Shares Outstanding				Beginning of Year				End of Year
Kirk, Inc.		42,000			$	54			$	61
Picard Co.		29,500				79				85
RETURN %: 2. You are given the following information concerning two stocks that make up an index. Assume that you want to reindex with the index value at the beginning of the year equal to 100. 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. 38,000 $ 48 $ 53 Picard Co. 34,000 78 84

Index Level:

Answer 1

1) We can calculate the return as follows:

Company	Shares Outstanding (A)	Beginning Price (B)	Beginning Value (A*B)	End Price (C)	End Value (A*C)
Kirk, Inc.	42,000	$ 54	$ 2,268,000	$ 61	$ 2,562,000
Picard Co.	29,500	$ 79	$ 2,330,500	$ 85	$ 2,507,500
Total			$ 4,598,500		$ 5,069,500

Beginning Weighted Value = (Value of Kirk in Beginning + Value of Picard in Beginning) / 2

= (2,268,000 + 2,330,500) / 2

= $ 2,299,250

End Weighted Value = (Value of Kirk in End + Value of Picard in End) / 2

= (2,562,000 + 2,507,500) / 2

= $ 2,534,750

Return % = (End Weighted Value - Beginning Weighted Value ) / Beginning Weighted Value

= (2,534,750 - 2,299,250) / 2,299,250

= 235,500 / 2,299,250

= 0.1024 or 10.24%

2) We can calculate the Index level as follows:

Company	Shares Outstanding (A)	Beginning Price (B)	Beginning Value (A*B)	End Price (C)	End Value (A*C)
Kirk, Inc.	38,000	$ 48	$ 1,824,000	$ 53	$ 2,014,000
Picard Co.	34,000	$ 78	$ 2,652,000	$ 84	$ 2,856,000
Total			$ 4,476,000		$ 4,870,000

Beginning Weighted Value = (Value of Kirk in Beginning + Value of Picard in Beginning) / 2

= (1,824,000 + 2,652,000) / 2

= $ 2,238,000

End Weighted Value = (Value of Kirk in End + Value of Picard in End) / 2

= (2,014,000 + 2,856,000) / 2

= $ 2,435,000

Return % = (End Weighted Value - Beginning Weighted Value ) / Beginning Weighted Value

= (2,435,000 - 2,238,000) / 2,238,000

= 197,000 / 2,238,000

= 0.0880 or 8.80%

If beginning index value is 100, then the closing inex value is

= beginning Index value + Return

= 100 + 8.80

= 108.80

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