Question 1

An index consists of the following securities.What is the value-weighted index return?

Accepted Answer

Beginning value = (5,000 × 20) + (2,000 × 38) = 176,000
Ending value = (5,000 × 28) + (2,000 × 40) = 220,000
Return = (220,000 − 176,000) / 176,000 = 25.00 percent

Question 2

You have the following information:  You want the beginning price-weighted index of these two stocks to be 500.Given this,what is the ending index value?

Accepted Answer

Beginning price-weighted index = [(15 + 31) / (15 + 31)] × 500 = 500
Ending price-weighted index = [(18 + 35) / (15 + 31)] × 500 = 576.09

Question 3

ML Underwriters paid an issuer $37,694,528 as IPO proceeds.The IPO offered 1.86 million shares of which 1.835 million were sold at an offer price of $21.85 a share.The underwriting spread was 7.25 percent.What type of underwriting was this?

Accepted Answer

Number of shares = [$37,694,528 / (1 − 0.0725)] / $21.85 = 1,860,000 shares. This was a firm commitment underwriting since the issuer was paid for all of the shares, even though the underwriter did not sell the entire issue.

Question 4

An index has a market value of $695,200 at the beginning of the period and $741,900 at the end of the period.If you want the beginning index value to be 100,what is the ending index value?

Accepted Answer

Beginning value-weighted index = (695,200 / 695,200) × 100 = 100
Ending value-weighted index = (741,900 / 695,200) × 100 = 106.72

Question 5

Assume the DJIA closed at 15,150 last night.The divisor is 0.123017848.Assume that 29 of the stocks in the index were unchanged today.One stock increased in value from $44.80 a share yesterday to $47.90 a share today.What is the DJIA index value at the close of trading today?

Accepted Answer

Old SP = 15,150 × 0.123017848 = 1,863.72
New SP = 1,863.72 + (47.90 − 44.80) = 1,866.82
New DJIA = 1,866.82 / 0.123017848 = 15,175.20

Question 6

Juno Markets is offering 900 shares in a Dutch auction IPO.The following bids have been received:  How much will Bidder B have to spend to purchase all of the shares that have been allocated to him?

Accepted Answer

Cost = 300 × [900 / (100 + 300 + 400 + 200)] × $15 = $4,050

Question 7

An index consists of the following securities.What is the value-weighted index return?

Accepted Answer

Beginning value = (4,500 × 18) + (7,500 × 12) + (3,500 × 32) = 283,000
Ending value = (4,500 × 22) + (7,500 × 11) + (3,500 × 36) = 307,500
Return = (307,500 − 283,000) / 283,000 = 7.07 percent

Question 8

A price-weighted index consists of stocks A,B,and C which are priced at $50,$35,and $15 a share,respectively.The current index divisor is 2.75.What will the new index advisor be if stock A undergoes a 5-for-1 stock split?

Accepted Answer

[(50 / 5) + 35 + 15] / x = (50 + 35 + 15) / 2.75; x = 1.65

Question 9

A price-weighted index consists of stocks A,B,and C which are priced at $30,$12,and $18 a share,respectively.The current index divisor is 2.40.If stock C undergoes a 1-for-3 reverse stock split,the new index divisor will be:

Accepted Answer

[30 + 12 + 18 / 3] / x = [(30 + 12 + 18) / 2.40]; x = 1.92

Question 10

DT Metals is offering 700 shares in a Dutch auction IPO.The following bids have been received:  What will the gross proceeds be for this offering?

Accepted Answer

Proceeds = 700 × $21 = $14,700

Question 11

You have the following information:  You want the beginning price-weighted index of these two stocks to be 100.Given this,what is the ending index value?

Accepted Answer

Beginning price-weighted index = [(35 + 22) / (35 + 22)] × 100 = 100
Ending price-weighted index = [(38 + 23) / (35 + 22)] × 100 = 107.02

Question 12

An index consists of the following securities and has an index divisor of 3.0.What is the price-weighted index return?

Accepted Answer

Price-weighted index = {[($24 + $10 + $36) / 3] − [($20 + $15 + $28) / 3]} / [($20 + $15 + $28) / 3] = 11.11 percent

Question 13

An index consists of the following securities and has an index divisor of 3.0.What is the price-weighted index return?

Accepted Answer

Price-weighted index = {[($32 + $28 + $22) / 3] − [($26 + $30 + $19) / 3]} / [($26 + $30 + $19) / 3] = 9.33 percent

Question 14

An index consists of the following securities and has an index divisor of 2.0.What is the price-weighted index return?

Accepted Answer

Price-weighted index = {[($51 + $36) / 2] − [($55 + $32) / 2]} / [($55 + $32) / 2] = 1.43 percent

Question 15

Moonlight is offering 1,100 shares in a Dutch auction IPO.The following bids have been received:  How much will Moonlight receive from this offering if the underwriter's fee is 6.5 percent?

Accepted Answer

(1,100 × $16) × (1 − 0.065) = $17,484.50

Question 16

Yesterday,the DJIA closed at 12,309.16.The divisor is 0.123017848.Today,every one of the stocks in the index increased in value by $0.40 a share.What is the value of today's closing DJIA?

Accepted Answer

Old SP = 12,309.16 × 0.123017848 = 1,514.25
New SP = 1,514.25 + (.40 × 30) = 1,526.25
New DJIA = 1,526.25 / 0.123017848 = 12,407

Question 17

A price-weighted index consists of stocks A,B,and C which are priced at $38,$21,and $26 a share,respectively.The current index divisor is 2.7.What will the new index divisor be if stock B undergoes a 3-for-1 stock split?

Accepted Answer

[38 + (21 / 3) + 26] / x = (38 + 21 + 26) / 2.7; x = 2.2553

Question 18

An index consists of the following securities.What is the value-weighted index return?

Accepted Answer

Beginning value = (1,000 × 32) + (4,000 × 22) + (6,000 × 57) = 462,000
Ending value = (1,000 × 38) + (4,000 × 23) + (6,000 × 55) = 460,000
Return = (460,000 − 462,000) / 462,000 = −0.43 percent

Question 19

An index consists of the following securities and has an index divisor of 3.0.What is the price-weighted index return?

Accepted Answer

Price-weighted index = {[($16 + $61 + $38) / 3] − [($21 + $49 + $37) / 3]} / [($21 + $49 + $37) / 3] = 7.48 percent

Question 20

Mason Materials is offering 800 shares in a Dutch auction IPO.The following bids have been received:  How many shares will be allocated to Bidder A?

Accepted Answer

Allocation = 200 × [800 / (200 + 300 + 100 + 500)] = 145 shares

Quiz 5: The Stock Market

An index consists of the following securities.What is the value-weighted index return?

You have the following information: You want the beginning price-weighted index of these two stocks to be 500.Given this,what is the ending index value?

ML Underwriters paid an issuer $37,694,528 as IPO proceeds.The IPO offered 1.86 million shares of which 1.835 million were sold at an offer price of $21.85 a share.The underwriting spread was 7.25 percent.What type of underwriting was this?

An index has a market value of $695,200 at the beginning of the period and $741,900 at the end of the period.If you want the beginning index value to be 100,what is the ending index value?

Assume the DJIA closed at 15,150 last night.The divisor is 0.123017848.Assume that 29 of the stocks in the index were unchanged today.One stock increased in value from $44.80 a share yesterday to $47.90 a share today.What is the DJIA index value at the close of trading today?

Juno Markets is offering 900 shares in a Dutch auction IPO.The following bids have been received: How much will Bidder B have to spend to purchase all of the shares that have been allocated to him?

An index consists of the following securities.What is the value-weighted index return?

A price-weighted index consists of stocks A,B,and C which are priced at $50,$35,and $15 a share,respectively.The current index divisor is 2.75.What will the new index advisor be if stock A undergoes a 5-for-1 stock split?

A price-weighted index consists of stocks A,B,and C which are priced at $30,$12,and $18 a share,respectively.The current index divisor is 2.40.If stock C undergoes a 1-for-3 reverse stock split,the new index divisor will be:

DT Metals is offering 700 shares in a Dutch auction IPO.The following bids have been received: What will the gross proceeds be for this offering?

You have the following information: You want the beginning price-weighted index of these two stocks to be 100.Given this,what is the ending index value?

An index consists of the following securities and has an index divisor of 3.0.What is the price-weighted index return?

An index consists of the following securities and has an index divisor of 3.0.What is the price-weighted index return?

An index consists of the following securities and has an index divisor of 2.0.What is the price-weighted index return?

Moonlight is offering 1,100 shares in a Dutch auction IPO.The following bids have been received: How much will Moonlight receive from this offering if the underwriter's fee is 6.5 percent?

Yesterday,the DJIA closed at 12,309.16.The divisor is 0.123017848.Today,every one of the stocks in the index increased in value by $0.40 a share.What is the value of today's closing DJIA?

A price-weighted index consists of stocks A,B,and C which are priced at $38,$21,and $26 a share,respectively.The current index divisor is 2.7.What will the new index divisor be if stock B undergoes a 3-for-1 stock split?

An index consists of the following securities.What is the value-weighted index return?

An index consists of the following securities and has an index divisor of 3.0.What is the price-weighted index return?

Mason Materials is offering 800 shares in a Dutch auction IPO.The following bids have been received: How many shares will be allocated to Bidder A?