Question

A benchmark index has three stocks priced at $15, $18, and $60. The number of outstanding shares for each is 600,000 shares, 500,000 shares, and 200,000 shares, respectively. If the market value weighted index was 1021 yesterday and the prices changed to $20, $21, and $55, what is the new index value

Answer 1

The New Index value is 1,140

Step-by-step explanation:

The computation of the new index value is shown below:

But before that we need to determine the following calculations

Market value yesterday is

= $15 × 600,000 shares + $18 × 500,000 shares + $60 × 200,000 shares

= $9,000,000 + $9,000,000 + $12,000,000

= $30,000,000

Now

Market value today is

= $20 × 600,000 shares + $21 × 500,000 shares + $55 × 200,000 shares

= $12,000,000 + $10,500,000 + $11,000,000

= $33,500,000

As we know that

Market value today ÷ Market value yesterday = Index today ÷ Index yesterday

So,

Index today = Market value today ÷ Market value yesterday × Index yesterday

= $33,500,000 ÷ $30,000,000 × 1,021

= 1,140

Hence, the New Index value is 1,140