Question
Deepa Chungi wishes to develop an average, or index, that can be used to measure the general behavior of stock prices over time. She has
Deepa Chungi wishes to develop an average, or index, that can be used to measure the general behavior of stock prices over time. She has decided to include 6 closely followed, high-quality stocks in the average or index. She plans to use August 15, 1987, her birthday, as the base and is interested in measuring the value of the average or index on August 15, 2013, and August 15, 2016. She has found the closing prices for each of the 6 stocks, A through F, at each of the 3 dates and has calculated a divisor that can be used to adjust for any stock splits, company changes, and so on that have occurred since the base year, which has a divisor equal to 1.00. a. Using the data given in the table,
Closing Stock Price
Stock August 15, 2013 August 15, 2010 August 15, 1984
A 45.61 40.14 49.75
B 36.81 35.87 9.36
C 19.07 22.71 6.69
D 59.66 61.16 25.47
E 81.55 70.59 45.28
F 31.49 30.61 32.51
Divisor 0.70 0.72 1.00
b. Using the data given in the table and assuming a base index value of 10 on August 15, 1987, calculate the market index, using the same methodology used to calculate the S&P indexes, at each of the 3 dates.
c. Use your findings in parts a and b to describe the general market conditionlong dashbull or bearlong dashthat existed between August 15, 2013, and August 15, 2016. d. Calculate the percentage changes in the average and index values between August 15, 2013, and August 15, 2016. Why do they differ?
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