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, 2016		August 15, 2013		August 15, 1987
A	$46.00		$40.00		$50.00
B	$37.00		$36.00		$10.00
C	$20.00		$23.00		$7.00
D	$59.00		$61.00		$26.00
E	$82.00		$70.00		$45.00
F	$32.00		$30.00		32.00
Divisor	0.70		0.72		1.00
Note: The number of shares of each stock outstanding has been the same on these dates.Therefore, the closing stock prices will behave identically to the closing market values.

Calculate the market average, using the same methodology used to calculate the Dow averages, at each of the 3 datesAugust 15, 1987, 2013, and 2016. 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 conditionbull or bearthat 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?

a. The market average for 1987 is

The market average for 2013 is

The market average for 2016 is

b. The market index for 1987 is

The market index for 2013 is

The market index for 2016 is

c. Both the market average and the market index show a general

upward

downward

trend, indicating a

bull

bear

market.

d. The percentage change in the average value is

The percentage change in the index value is

Why do they differ?(Select the best answer below.)

A.

The numbers are the same since, in an efficient market, both measures have to agree.

B.

The numbers differ because one is an average of stock prices relative to a base period value and the other is an index on a particular day.

C.

The numbers differ because one is an average of stock prices on a particular day and the other is an index compared to a base period value.

D.

The numbers are the same because one is an average of stock prices on a particular day and the other is an index compared to a base period value.