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Problem 5-6 Reindexing (LO4, CFA2) You are given the following information concerning two stocks that make up an index
Problem 5-6 Reindexing (LO4, CFA2) You are given the following information concerning two stocks that make up an index. Assume that you want to reindex with the index value at the beginning of the year equal to 100. What is the index level at the end of the year? (Round your answer to 2 decimal places.) Shares Outstanding 35,000 26,000 Price per Share Beginning End of of Year Year $ 37 $ 42 91 Kirk, Inc. Picard Co. 84 Index level
Expert Solution
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Answer:
Index level at the end of the year = ( Ending value / Beginning value ) * Beginning index value
Beginning value = Number of shares outstanding * price per share
Beginning value = Kirk, inc. + Picard co.
= (35000 * $37) + (26000 * $84)
= $1295000 + $2184000
= $3479000
Ending value = Number of shares outstanding * price per share
Ending value = Kirk, Inc. + Picard co.
= (35000 * $42) + (26000 * $91)
= $1470000 + $2366000
= $3836000
Given, Beginning index value is 100
Index level at the end of the year = (Ending value / Beginning value) * Beginning index value
= ($3836000 / $3479000) * 100
= 1.10 * 100
= 110
Index level at the end of the year is 110
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