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Problem 5-11 DJIA (LO4, CFA2) On January 4, 2019, the DJIA opened at 22,686
Problem 5-11 DJIA (LO4, CFA2) On January 4, 2019, the DJIA opened at 22,686.22. The divisor at that time was .1474807199. In January 2019, Boeing was the highest- priced stock in the DJIA and Cisco was the lowest. The closing price for Boeing on January 3, 2019, was $310.90, and the closing price for Cisco was $41.07. Suppose the next day the other 29 stock prices remained unchanged and Boeing increased 5 percent. What would the new DJIA level be? Now assume only Cisco increased by 5 percent. Find the new DJIA level. (Do not round intermediate calculations. Round your answers to 2 decimal places.) DJIA if Boeing increased 5 percent DJIA if Cisco increased by 5 percent
Expert Solution
here first we have to calculate index value:
index value = Total stock prices / divisor
22,686.22 = Total stock prices / 0.1474807199
so Total stock prices = 22,686.22 * 0.1474807199 = 3345.78
if boeing increases 5%:
increase = 310.90 * 5% = 15.545
Total stock value after increase = 3345.78 + 15.545 = 3361.325
Index value = 3361.325 / 0.1474807199 = 22,791.62
If cisco increased by 5%:
increase in value = 41.07*5% = 2.0535
Total stock value after increase = 3345.78 + 2.0535 = 3347.834
Index value = 3347.834 / 0.1474807199 = 22,700.14
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