-Purple, Indigo and Violet are the only stocks in an index. You want the beginning index value to be 500. What is the ending index value for the price-weighted index?

Question

Quizplus · Accepted Answer

Since it's a price-weighted index, we need to find the sum of the stock prices and divide it by a divisor to get the ending index value. Let's assume each stock has the following prices:

Purple - $100
Indigo - $200
Violet - $75

The starting index value is 500, so we need to find the ending index value by using the following formula:

Ending index value = (Sum of stock prices / Divisor) + Starting index value

To find the divisor, we can simply add up the stock prices:

100 + 200 + 75 = 375

Divisor = 3

Using the formula, we get:

Ending index value = (375/3) + 500 = 625/3 = 208.33

However, the question asks for the ending index value rounded to two decimal places, so the closest choice is A) 535.53.

-Purple, Indigo and Violet Are the Only Stocks in an Index