Hi, could somebody please help me with this problem. thank you 1. You are given

ID: 2700673 • Letter: H

Question

Hi, could somebody please help me with this problem.

thank you

1. You are given the following information regarding prices for stocks of the following firms:

Stock /Number of Shares/ T / T+ 1

Lauren Corp. /1,000,000/ 60 /80

Kayleigh Co./10,000,000 /20 /35

Madison Ltd. /30,000,000/ 18 /25

a. Construct a price-weighted index for these three stocks, and compute the percentage change in the

series for the period from T to T + 1.

b. Construct a market-value-weighted index for these three stocks, and compute the percentage

change in the series for the period from T to T + 1.

c. Briefly discuss the difference in the results for the two stock indexes.

Hi,

Please find the answer as follows;

Part A:

Price Weighted Index

T = 60 + 20 + 18 = 98

T + 1 = 80 + 35 + 25 = 140

% Change in the Series from T to T + 1 = (140/98) - 1 = 42.85%

Part B

Market Value Index

T = 1000000*60 + 10000000*20 + 30000000*18 = 800000000

T + 1 = 1000000*80 + 10000000*35 + 30000000*25 = 1180000000

Market Weighted Return = 1180000000/800000000*100 = 147.5

Percentage change in the series for the period from T to T + 1 = (147.5/100) - 1 = 47.5%

Part C:

Difference is of = 47.5% - 42.85% = 4.65%

Thanks.

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