Assume the following five companies are used in computing an index Base Period C

Question

Assume the following five companies are used in computing an index

                                                            Base Period                  Current Period

                        Shares                          January 1, 1977           December 31, 2009

Company         Outstanding                 Market Price                Market Price

A                     2,000                           $ 2.00                         $   14.00

B                      6,000                               6.00                              18.00

C                      5,000                               9.00                              23.00

D                     8,000                           10.00                                5.00

E                      1,000                           13.00                              40.00

(There have been no stock splits during this time.)

Determine the index value if the index is calculated on a value weighted basis.

Explanation / Answer

Total MV in 1977 = 2000*2+6000*6+5000*9+8000*10+1000*13 = $178,000

Total MV in 2009 = 2000*14+6000*18+5000*23+8000*5+1000*40 = $331,000

Index value = 331,000/178,000 = 1.859

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