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Basic Question 10 of 14
There is a price-weighted market index composed of four stocks. The prices of the four stocks are $123, $143, $43, and $304. Assuming that the price of the $123 stock increased by 9%, by how much would the index change?
B. The index would increase by 1.8%.
C. The index would increase by 2.5%.
A. The index would decrease by 0.2%.
B. The index would increase by 1.8%.
C. The index would increase by 2.5%.
User Contributed Comments 12
| User | Comment |
|---|---|
| tony1973 | no the formula is correct. you can also say: (624.07-613)/613. |
| vrs3 | Isn't the formula....624.07-613/613. |
| vvenkatr | You have to assume that the prices of the other three stocks do not change. |
| o123 | ...is that really such a difficult assumption? |
| eb2568 | you can also take (123/613) which is .2007 and multiply by .09 and it is .0181. This saves a little time i think. |
| uma85 | Day 1 : 123+143+43+304= 613/4 = 153.25 Day 2 : (123*.09)+143+43+304= 624.07/4 = 156.01 Day to Day % change = (Day 2/ Day 1) - 1 (156.01/153.25) - 1 = .018 or 1.8 % |
| DonAnd | That's exactly the way I did it uma85 |
| jonan203 | vrs3: check your order of operations...you'll get the wrong answer that way. |
| Shaan23 | Do what EB says. Think logically guys. Its PRICE weighted. Look at the weight of the first price and only that one changes. |
| enetis | Or.... weight of stock x %px chg of stock (.2)(.09) = 1.8% |
| birdperson | i got it the way @enetis did |
| Inaganti6 | Why so much chit chat over something so simple. Some of you guys really. |
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
describe the choices and issues in index construction and management
compare the different weighting methods used in index construction
calculate and analyze the value and return of an index given its weighting method
describe rebalancing and reconstitution of an index
CFA® 2024 Level I Curriculum, Volume 3, Module 2.