Question 2454 of 3960 from exam CFA® LEVEL 1: CFA® Level 1

Question 2454 of 3960 from exam CFA® LEVEL 1: CFA® Level 1

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Question

The table below lists information on price per share and shares outstanding for three stocks ?Rocking, Payton, and Strand.

Using the information in the table, calculate the value of a price-weighted index at year-end and the one- year return on the market weighted index. At the beginning of the year, the value of the market weighted index was 100. (Note: The choices are listed in the order price-weighted index value, market value- weighted index percent return, respectively.) Which of the following choices is closest to the correct answer?

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Explanations

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A. B. C. D.

A

Calculations are as follows:

First, we will calculate the value of the price-weighted index at year-end, and then we will calculate the return on the market-weighted index.

Step 1: Calculate value of the price-weighted index at year-end:

Value of price-weighted index = (sum of stock per share prices) / (number of stocks)

= (15 + 50 + 85) / 3 =50.0

Step 2: Calculate the one-year return on the market-weighted index:

First, we will calculate the year-end market-weighted index value, then we will calculate the return percentage.

Value of market-weighted index =

[(market capitalization year-end) / (market capitalization beginning of year)]* Beginning index value

= (442,500 / 400,000) * 100 = 110.625

One-Year Return = [(Index value year-end/ Index value beginning of year) -1]* 100

= [ (110.625 / 100) "" 1] * 100 =10.625, or approximately 10.6%.

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