•Assume that there are 3 stocks in the market. • Share outstanding and prices are as follows. Stock A Stock B Stock C Outstanding Shares 200 shares 300 shares 100 shares Total Stock Prices Index (Price Wt) Total Market Capitalization Index (Market Cap Wt) Stock Market Indexes Day 0 Price 11 16 17 12 11 39 40 100.00 102.56 8200 8600 100.00 104.88 Day 1 Price 12 Day2 Price 12 14 14 40 102.56 8000 97.56 Day3 Price 11 15 14 40 102.56 8100 98.78 • Each stock is assigned a relative weight in the portfolio. • A price-weighted index (e.g., Dow Jones) is computed by summing the prices of the individual stocks, then dividing by a divisor to determine the base index value. The divisor, such as 100, relates the starting value and is adjusted as stocks split or composition of the index is changed. • A market value-weighted index (e.g., S&P 500) is calculated by summing the total market value of the firms in the index. The percentage change in the total market value of the firms is the return on the index.
•Assume that there are 3 stocks in the market. • Share outstanding and prices are as follows. Stock A Stock B Stock C Outstanding Shares 200 shares 300 shares 100 shares Total Stock Prices Index (Price Wt) Total Market Capitalization Index (Market Cap Wt) Stock Market Indexes Day 0 Price 11 16 17 12 11 39 40 100.00 102.56 8200 8600 100.00 104.88 Day 1 Price 12 Day2 Price 12 14 14 40 102.56 8000 97.56 Day3 Price 11 15 14 40 102.56 8100 98.78 • Each stock is assigned a relative weight in the portfolio. • A price-weighted index (e.g., Dow Jones) is computed by summing the prices of the individual stocks, then dividing by a divisor to determine the base index value. The divisor, such as 100, relates the starting value and is adjusted as stocks split or composition of the index is changed. • A market value-weighted index (e.g., S&P 500) is calculated by summing the total market value of the firms in the index. The percentage change in the total market value of the firms is the return on the index.
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
Problem 1PS
Related questions
Question
100%
According to the explanation of the attached picture in my textbook is that
" price-weighted index (e.g., Dow Jones) is computed by
summing the prices of the individual stocks, then dividing by a
divisor to determine the base index value.
The divisor, such as 100, relates the starting value and is
adjusted as stocks split or composition of the index is changed"
please illustrate the calculation of stock market indexs and market value-weighted index correlatively with the table in picture and the explanation below the table to make me understand why divisor is 100, what's the core concept in calculating both price-weighted index and market value-weighted index in the table
Transcribed Image Text:Stock Market Indexes
• Assume that there are 3 stocks in the market.
• Share outstanding and prices are as follows.
Stock A
Stock B
Stock C
Outstanding
Shares
200 shares
300 shares
100 shares
Total Stock Prices
Index (Price Wt)
Total Market Capitalization
Index (Market Cap Wt)
Stock Market Indexes
Day 0
Price
11
16
12
Day 1
Price
12
17
11
39
40
100.00 102.56
8200
8600
100.00
104.88
Day2
Price
12
14
14
40
102.56
8000
97.56
Day3
Price
11
15
14
40
102.56
8100
98.78
• Each stock is assigned a relative weight in the portfolio.
• A price-weighted index (e.g., Dow Jones) is computed by
summing the prices of the individual stocks, then dividing by a
divisor to determine the base index value.
• The divisor, such as 100, relates the starting value and is
adjusted as stocks split or composition of the index is changed.
• A market value-weighted index (e.g., S&P 500) is calculated by
summing the total market value of the firms in the index. The
percentage change in the total market value of the firms is the
return on the index.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education