You want to form a value–weighted technology stock index using Apple, Google, an
ID: 2814282 • Letter: Y
Question
You want to form a value–weighted technology stock index using Apple, Google, and Microsoft. Apple’s adjusted closing price for 2018 is $189.62 and for 2017 is $145.93; Google’s adjusted closing price for 2018 is $1,217.26 and for 2017 is $930.50; Microsoft’s adjusted closing price for 2018 is $105.67 and for 2017 is $71.03. The additional information that you gathered is their market values at the end of 2017 or beginning of 2018; in billions of dollars, Apple's market value is $810.38 B, Google's market value is $664.13 B, and Microsoft's market value is $564.93 B. What is the annual return for your value–weighted technology stock index for 2018? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35
Explanation / Answer
To find the annual return , first we need to find the number of outstanding shares.
Since the Market value at the end of 2017 and Closing price for 2017 is given , we can calculate Number of outstanding shares as Market value at the end of 2017/Closing price for 2017
No. of shares for Apple= 810.38 billion/145.93=5.55 billion
No. of shares for Google= 664.13 billion/930.50=0.71 billion
No. of shares for Microsoft= 564.93 bllion/71.03=7.95 billion
Now , We need to find the Market value as of 2018 that will be calculated as
=No. of share outstanding* Closing Price of 2018
Market Value of Apple at the end of 2018= 5.55 Billion*189.62= 1053.00 Billion
Market Value of google at the end of 2018= 0.71 Billion*1217.26= 868.80 billion
Market Value of Microsoft at the end of 2018=7.95 Billion*105.67= 840.44 Billion
Total Market value of the Index in 2018= sum of market value of apple google and Microsoft in 2018
=1053.00 b+868.80 b+840.44b =2762.24 Billion
Total Market value of the Index in 2017= sum of market value of apple google and Microsoft in 2017
=810.38 B+664.13B+564.93 B= 2039.44 Billion
Annual Return = (Total Market value of 2018-Total Market value of 2017)/Total Market value of 2017
= (2762.24 B-2039.44 B)/2039.44 B
=35.44 %
Thus the answer is 35.44
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