Question

Assume that you have a stock currently priced at $56 that moves exactly proportional to the S&P 500 Index. Over a six-month period the index moves from 1,110 to 1,243.20. What should the price of your stock be?

Answer 1

To determine the new price of a stock that moves proportionally to the S&P 500 Index, calculate the percentage increase of that index and apply it to the stock price. With an index increase from 1,110 to 1,243.20, this method gives a new stock price of $62.72 from the original $56.

The price of a stock that moves exactly proportional to the S&P 500 Index can be calculated based on the index's movement. Given that the S&P 500 Index moved from 1,110 to 1,243.20, we can determine the percentage increase and then apply this proportionate increase to the initial stock price of $56.

First, calculate the percentage increase in the S&P 500 Index:

Percentage increase = (1,243.20 - 1,110) / 1,110 = 0.12 or 12%

Next, apply this percentage increase to the stock price:

Increased stock price = $56 * (1 + 0.12) = $56 * 1.12 = $62.72

Therefore, the new price of the stock should be $62.72 if it moves exactly proportional to the increase in the S&P 500 Index.