Question

You are wanting to invest. The following table represents the portfolio for shares. Use the Laspeyres and Paasche's price indices to determine how the shares fared. Conclude your calculations with a summary of how the shares faired, and whether or not you would consider investing in any of the company's.

Share	Base year		2018
	p0	q0d	p1	q1
A	120	210	180	125
B	150	220	175	212
C	180	250	205	220

Answer 1

Solution:

Share	Base year		2018
	p0	q0d	p1	q1
A	120	210	180	125
B	150	220	175	212
C	180	250	205	220

The formula to find Laspeyres price index is as follows:

Laspeyres price index for base year={(120*210)+(150*220)+(180*250) / (120*210)+(150*220)+(180*250)}*100

={(25200+33000+45000) / (25200+33000+45000)}*100

={103200/103200}*100

=100

Laspeyres price index for 2018={(180*125)+(175*212)+(205*220) / (120*210)+(150*220)+(180*250)}*100

={(22500+37100+45100) / (25200+33000+45000)}*100

={104700/103200}*100

=101.45

With this index, the only changes are the prices over the year. The quantities for each good remains the same throughout the years.

The formula to find Paasche's price index is as follows:

Paasche's price index for base year={(120*210)+(150*220)+(180*250) / (120*210)+(150*220)+(180*250)}*100

={(25200+33000+45000) / (25200+33000+45000)}*100

={103200/103200}*100

=100

Paasche's price index for 2018={(180*125)+(175*212)+(205*220) / (120*125)+(150*212)+(180*220)}*100

={(22500+37100+45100) / (15000+31800+39600)}*100

={104700/86400}*100

=121.18

With this index, the only changes are the prices over the year.We are comparing the current year prices to the base year prices at the same quantities.