Question 2483 of 3960 from exam CFA® LEVEL 1: CFA® Level 1

Question 2483 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 market-value weighted index at year-end and the one-year return on the price-weighted index. The beginning value for the market index is 100. (Note: The choices are listed in the order market-value weighted index value and price-weighted index percent return, respectively). Which of the following choices is closest to the correct answer?

Answers

Explanations

Click on the arrows to vote for the correct answer

A. B. C. D.

B

Calculations are as follows:

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

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

Value of market-weighted index =

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

= (442,500 / 400,000) * 100 = 110.625, or approximately 110.6

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

First, we will calculate the price-weighted index value for both the beginning of year and end of year, then we will calculate the return percentage.

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

= (10 + 50 + 100) / 3 =53.333

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

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

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

= [ 50.0 / 53.333) "" 1] * 100 =-6.3%

Note:Your calculation may differ slightly due to rounding. Remember that the question asks you to select the closest choice.

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