4. The market consists of the following stocks. Their prices and number of share

Question

4. The market consists of the following stocks. Their prices and number of shares are as follows:

Stock    Price     Number of Shares Outstanding

A           $10                100,000

B            20                 10,000

C            30                200,000

D            40                 50,000

a. The price of Stock C doubles to $60, what is the percentage increase in the market if a S&P 500 type of measure of the market is used?

b. Repeat question (a) but use a Value Line type of measure of the market (i.e., a geometric average) to determine the percentage increase.

c. Suppose the price of stock B doubled instead of stock C. How would the market have fared using the aggregate measures employed in (a) and (b)? Why are your answers different?

Explanation / Answer

Current %age of Stock No of Shares Price Value Market Weight Change of value Increase A 100000 10 1000000 26.32% 1000000 0.00% B 10000 20 200000 5.26% 200000 0.00% C 20000 30 600000 15.79% 1200000 100.00% D 50000 40 2000000 52.63% 2000000 0.00% Total 3800000 100.00% 4400000 15.79% Answer a. Value increased by =4,400,000-3,800,000 = 600,000 %age of increase = 600,000/3,800,000*100 = 15.79% Answer b Before change Geometric Mean =(return 1 x return 2 x

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.