Problem 5-5 Value-Weighted Index (LO4, CFA2) Assume the following information concerning two stocks that make up an index

Finance Nov 13, 2020

Problem 5-5 Value-Weighted Index (LO4, CFA2) Assume the following information concerning two stocks that make up an index. What is the value-weighted return for the index? (Enter your answer as a percent rounded to 2 decimal places.) Price per Share Beginning End of of Year Year $ 37 $ 42 84 91 Shares Outstanding 35,000 26,000 Kirk, Inc. Picard Co. Return %

Expert Solution

Current Index value:

= [current total market value of index stocks] = [Base year total market value of index stocks] x Base year index value

= [(42 x 35000) + (91x 26000)] - [(37 x 35000) + (84x 26000)] * 100

=[ (1470000 + 2366000 ) / (1295000 + 2184000) ] * 100

= (3836000 / 3479000) * 100

= 110.26

Return in percent = (110.26 - 100 ) / 100

= 0.1026 or 10.26%

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