1. You are given the following information regarding prices for a sample of stocks. PRICE Stock Number of Shares T+1 A 1,000,000 60 80 10,000,000 20 35 30,000,000 18 25 Chapter 4: Security Market Indexes and Index Funds 117 a. Construct a price-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T + 1. b. Construct a value-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T + 1. e. Briefly discuss the difference in the results for the twu indexes. 2. a. Given the data in Problem 1, construct an equal-weighted index by assuming $1,000 is invested in each stock. What is the percentage change in wealth for this portfolio? b. Compute the percentage of price change for each of the stocks in Problem 1. Compute the arithmetic mean of these percentage changes. Discuss how this answer compares to the answer in part (a). c. Compute the geometric mean of the percentage changes in part (b). Discuss how this result compares to the answer in part (b).

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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1. You are given the following information regarding prices for a sample of stocks.
PRICE
Stock
Number of Shares
T+1
A
1,000,000
60
80
10,000,000
20
35
30,000,000
18
25
Chapter 4: Security Market Indexes and Index Funds 117
a. Construct a price-weighted index for these three stocks, and compute the percentage
change in the index for the period from T to T + 1.
b. Construct a value-weighted index for these three stocks, and compute the percentage
change in the index for the period from T to T + 1.
e. Briefly discuss the difference in the results for the twu indexes.
2. a. Given the data in Problem 1, construct an equal-weighted index by assuming $1,000 is
invested in each stock. What is the percentage change in wealth for this portfolio?
b. Compute the percentage of price change for each of the stocks in Problem 1. Compute
the arithmetic mean of these percentage changes. Discuss how this answer compares to
the answer in part (a).
c. Compute the geometric mean of the percentage changes in part (b). Discuss how this
result compares to the answer in part (b).
Transcribed Image Text:1. You are given the following information regarding prices for a sample of stocks. PRICE Stock Number of Shares T+1 A 1,000,000 60 80 10,000,000 20 35 30,000,000 18 25 Chapter 4: Security Market Indexes and Index Funds 117 a. Construct a price-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T + 1. b. Construct a value-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T + 1. e. Briefly discuss the difference in the results for the twu indexes. 2. a. Given the data in Problem 1, construct an equal-weighted index by assuming $1,000 is invested in each stock. What is the percentage change in wealth for this portfolio? b. Compute the percentage of price change for each of the stocks in Problem 1. Compute the arithmetic mean of these percentage changes. Discuss how this answer compares to the answer in part (a). c. Compute the geometric mean of the percentage changes in part (b). Discuss how this result compares to the answer in part (b).
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