Security-Market Indexes | Chapter 5 | Problem 2 | Investment Analysis and Portfolio Management | Reilly & Brown | 10th Edition@FinanceSchoolWithMdEdrichMolla
Problem 2.
a. Given the data in Problem 1, construct an equal-weighted index by assuming $1,000 is invested in each stock. What is the percentage change in wealth for this portfolio?
b. Compute the percentage of price change for each of the stocks in Problem 1. Compute the arithmetic mean of these percentage changes. Discuss how this answer compares to the answer in Part a.
c. Compute the geometric mean of the percentage changes in Part b. Discuss how this result compares to the answer in Part b.
_______________________________________________
Problem 1.
You are given the following information regarding prices for a sample of stocks.
PRICE
Stock Number of Shares T T+1
A 1,000,000 60 80
B 10,000,000 20 35
C 30,000,000 18 25
a. Construct a price-weighted index for these three stocks, and compute the percentage
change in the index for the period from T to T + 1.
b. Construct a value-weighted index for these three stocks, and compute the percentage
change in the index for the period from T to T + 1.
c. Briefly discuss the difference in the results for the two indexes.
#security_market_index #arithmetic_mean #geometric_mean #equal_weight_index
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