Question

A benchmark market value index is comprised of three stocks. Yesterday the three stocks were priced at $24, $34, and $75. The number of outstanding shares for each is 790,000 shares, 690,000 shares, and 390,000 shares, respectively. If the stock prices changed to $28, $32, and $77 today respectively, what is the 1-day rate of return on the index .

Answer 1

Index return = ($28 x 790,000 + $32 x 690,000 + $77 x 390,000) /($24 x 790,000 + $34 x 690,000 + $75 x 390,000) - 1

Index return = $22,120,000 + $22,080,000 + $30,030,000/ $18,960,000 + $23,460,000 + $29,250,000)

                         = $74,230,000/ $71,670,000 – 1

                         = 1.0357 – 1

                         = 0.0357*100

                         = 3.57%.

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