Question

"A benchmark index has three stocks priced at $23, $43, and $56. The number of outstanding shares for each is 350000 shares, 405000 shares, and 553000 shares, respectively. Suppose the price of these three stocks changed to $23, $51, and $58 and number of outstanding shares did not change, what is the value-weighted index return?"

		0.72%
		7.39%
		8.20%
		7.70%

Answer 1

Value-Weighted index at the beginning = ($23 * 350000) + ($43 * 405000) + ($56 * 553000) = $56,433,000

Value-Weighted index at the end = ($23 * 350000) + ($51 * 405000) + ($58 * 553000) = $60,779,000

Value-weighted index return = ($60,779,000 - $56,433,000) / $56,433,000 = 7.70%

Value-weighted index return = 7.70%