Use the following information to answer Questions 14-18. The table below reports
ID: 2771585 • Letter: U
Question
Use the following information to answer Questions 14-18. The table below reports the closing market prices (P) and shares outstanding (SO) for two stocks: ABC and XYZ. Note that stock XYZ has a 3 for 1 stock split which may, or may not, impact index construction.What is the value of the Price-Weighted Index as of Period 3?
Period
ABC
XYZ
P
SO
P
SO
1
45.00
110
112.00
300
2
47.00
110
119.00
300
3
49.00
110
41.33
900
a) 83.00 b) 87.33
c) 89.98
d) 90.01
Period
ABC
XYZ
P
SO
P
SO
1
45.00
110
112.00
300
2
47.00
110
119.00
300
3
49.00
110
41.33
900
a) 83.00 b) 87.33
c) 89.98
d) 90.01
Explanation / Answer
Total market cap should be calculated as below:
Period 1
Period 3
Stock
Price
Share
Market cap
Stock
Price
Share
Market cap
A
$45
110
$4,950
A
$49
110
$5,390
X
$112
300
$33,600
X
$41.33
900
$37,197
$38,550
$42,587
Value of the value-weighted index (Period 3) = {(Market cap of 1) / (Market cap of 3)} × 100
= ($38,550 / $42,587 ) × 100
= 90.01 %
Answer: The right option is D.
Period 1
Period 3
Stock
Price
Share
Market cap
Stock
Price
Share
Market cap
A
$45
110
$4,950
A
$49
110
$5,390
X
$112
300
$33,600
X
$41.33
900
$37,197
$38,550
$42,587