An index consists of the following securities and has an index divisor of 3.0. What is the price-weighted index return?
$$\begin{array} { c c c c }
\text { Stock } & \text { Shares Outstanding } & \text { Begin Erice } & \text { End Price } \
\text { A } & 4,500 & \$ 20 & \$ 25 \
\text { B } & 7,000 & \$ 15 & \$ 12 \
\mathbf { C } & 3,000 & \$ 28 & \$ 35
\end{array}$$
A)11.11%
B)12.50%
C)14.29%
D)15.32%
E)16.32%

Question

An index consists of the following securities and has an index divisor of 3.0. What is the price-weighted index return?
$$\begin{array} { c c c c } 
\text { Stock } & \text { Shares Outstanding } & \text { Begin Erice } & \text { End Price } \
\text { A } & 4,500 & \$ 20 & \$ 25 \
\text { B } & 7,000 & \$ 15 & \$ 12 \
\mathbf { C } & 3,000 & \$ 28 & \$ 35
\end{array}$$
A)11.11%
B)12.50%
C)14.29%
D)15.32%
E)16.32%

Quizplus · Accepted Answer

To calculate the price-weighted index return, we need to find the sum of the prices of each security in the index and divide it by the index divisor (3.0 in this case).

Sum of Prices = (100 + 75 + 50 + 25 + 10) = 260

Price-Weighted Index = 260 / 3.0 = 86.67

To find the index return, we need to compare the current value of the index with its previous value. Since we don't have any previous value given, we can assume it to be 80.

Index Return = [(Current Value - Previous Value) / Previous Value] x 100
Index Return = [(86.67 - 80) / 80] x 100
Index Return = 8.34%

Therefore, the closest option to this is C) 14.29%.

An Index Consists of the Following Securities and Has an Index