A benchmark index has three stocks priced at $23,$43,and $56.The number of outstanding shares for each is 350,000 shares,405,000 shares,and 553,000 shares,respectively.If the market value weighted index was 970 yesterday and the prices changed to $23,$41,and $58,what is the new index value?
A) 960
B) 970
C) 975
D) 985

Question

Quizplus · Accepted Answer

To calculate the market value weighted index, we need to first calculate the total market value of each stock.
 
Yesterday's total market value was:
Stock 1: $23 x 350,000 = $8,050,000
Stock 2: $43 x 405,000 = $17,415,000
Stock 3: $56 x 553,000 = $30,968,000
 
Total market value = $8,050,000 + $17,415,000 + $30,968,000 = $56,433,000
 
Yesterday's index value = 970
 
New total market value is:
Stock 1: $23 x 350,000 = $8,050,000
Stock 2: $41 x 405,000 = $16,605,000
Stock 3: $58 x 553,000 = $32,074,000
 
New total market value = $8,050,000 + $16,605,000 + $32,074,000 = $56,729,000
 
New index value = (New total market value / Yesterday's total market value) x Yesterday's index value
 
New index value = ($56,729,000 / $56,433,000) x 970 = 975.31
 
Therefore, the new index value is 975, which is closest to option C) 975.

A Benchmark Index Has Three Stocks Priced at $23,$43,and $56