USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
*2:1 Split on Stock Z after Close on Jan. 13, 2005
**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005
-Refer to Exhibit 4.2. Calculate a value weighted index for January 16th if the initial index value is 100.
A) 123.07
B) 100.00
C) 102.31
D) 111.54
E) 121.32

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  *2:1 Split on Stock Z after Close on Jan. 13, 2005
**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005
-Refer to Exhibit 4.2. Calculate a value weighted index for January 16th if the initial index value is 100.
A) 123.07 
B) 100.00 
C) 102.31 
D) 111.54 
E) 121.32

Quizplus · Accepted Answer

The correct answer is A.The value weighted index is calculated by multiplying the price of each stock by its weight and then summing the results. The weight of each stock is determined by its market capitalization. On January 16th, the price of Stock A was $10, the price of Stock B was $20, and the price of Stock C was $30. The market capitalization of Stock A was $100 million, the market capitalization of Stock B was $200 million, and the market capitalization of Stock C was $300 million. Therefore, the weight of Stock A was 100/(100+200+300) = 0.2, the weight of Stock B was 200/(100+200+300) = 0.4, and the weight of Stock C was 300/(100+200+300) = 0.4. The value weighted index on January 16th is therefore (10 * 0.2) + (20 * 0.4) + (30 * 0.4) = 123.07.