Consider the following three stocks: $\begin{array}{lll}
\underline{\text { Stock }} &\underline{ \text { Price } }&\underline{ \text { Number of shares outstandins} } \
\text { Stock A } & \$ 40 & 200 \
\text { Stock B } & \$ 70 & 500 \
\text { Stock C } & \$ 10 & 600
\end{array}$

-The value-weighted index constructed with the three stocks using a divisor of 100 is
A)1.2
B)1200
C)490
D)4900
E)49

Question

Consider the following three stocks: $\begin{array}{lll}
\underline{\text { Stock }} &\underline{ \text { Price } }&\underline{ \text { Number of shares outstandins} } \
\text { Stock A } & \$ 40 & 200 \
\text { Stock B } & \$ 70 & 500 \
\text { Stock C } & \$ 10 & 600
\end{array}$

-The value-weighted index constructed with the three stocks using a divisor of 100 is
A)1.2
B)1200
C)490
D)4900
E)49

Quizplus · Accepted Answer

To calculate the value-weighted index, we need to first calculate the market value of each stock. This is given by:

Market Value of Stock A = Price of Stock A × Number of Shares Outstanding = \$40 × 200 = \$8,000
Market Value of Stock B = Price of Stock B × Number of Shares Outstanding = \$70 × 500 = \$35,000
Market Value of Stock C = Price of Stock C × Number of Shares Outstanding = \$10 × 600 = \$6,000

The total market value of all stocks is:

Total Market Value = Market Value of Stock A + Market Value of Stock B + Market Value of Stock C
= \$8,000 + \$35,000 + \$6,000 = \$49,000

Using a divisor of 100, the value-weighted index is:

Value-Weighted Index = Total Market Value / Divisor
= \$49,000 / 100
= 490

Therefore, the correct answer is C.

Consider the Following Three Stocks -The Value-Weighted Index Constructed with the Three Stocks Using a \text