Four companies belong to a group and are listed on a stock exchange. The cross-holdings of these companies are as follows.
$\bullet$ Company A owns 30% of Company B and 10% of Company C.
$\bullet$ Company B owns 10% of Company C.
$\bullet$Company C owns 10% of Company A, 10% of Company B, and 25% of Company D.
$\bullet$Company D owns 10% of company B.
Each company has a market capitalization of $50 billion. You wish to adjust for cross-holding to reflect the weights of these companies in a market-capitalization weighted index.
a. What adjustments would you make in the market capitalization of each company to reflect the free float?
b. What would be the total adjusted market capitalization of the four companies?

Question

Quizplus · Accepted Answer

The Answer of Four companies belong to a group and are listed on a stock exchange. The cross-holdings of these companies are as follows.
$\bullet$ Company A owns 30% of Company B and 10% of Company C.
$\bullet$ Company B owns 10% of Company C.
$\bullet$Company C owns 10% of Company A, 10% of Company B, and 25% of Company D.
$\bullet$Company D owns 10% of company B.
Each company has a market capitalization of $50 billion. You wish to adjust for cross-holding to reflect the weights of these companies in a market-capitalization weighted index.
a. What adjustments would you make in the market capitalization of each company to reflect the free float?
b. What would be the total adjusted market capitalization of the four companies?

Four Companies Belong to a Group and Are Listed on a Stock