Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Assume there are only two stocks traded in the stock market, and you are trying to construct an index for stock prices. In the base
Assume there are only two stocks traded in the stock market, and you are trying to construct an index for stock prices. In the base year the prices were $20 per share for stock 1, with 100 million shares outstanding, and $10 for stock 2 with 50 million shares outstanding. A year later the prices are $30 for stock 1 and $2 for stock 2, respectively. a) Calculate the price-weighted stock price index. b) Calculate the value-weighted stock price index. c) Which of the two methods (price-weighted or value-weighted) more accurately reflects what happened to the total market value between the base year and the current year? Explain your
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started