Problems
1. You are given the following information regarding prices for stocks of the following firms:
PRICE
Stock
Number of Shares
T
T+1
Lauren Corp.
1,000,000
60
80
Kayleigh Co.
10,000,000
20
35
Madison Ltd.
30,000,000
18
25
a. Construct a price-weighted index for these three stocks, and compute the percentage change in the
series for the period from T to T + 1.
b. Construct a market-value-weighted index for these three stocks, and compute the percentage
change in the series for the period from T to T + 1.
c. Briefly discuss the difference in the results for the two stock indexes.
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 equal-weighted portfolio?
b. Compute the percentage of price change for each of the stocks in Problem 1. Compute the arith-
metic average of these percentage changes. Discuss how this answer compares to the answer in 2a.
c. Compute the geometric average of the three percentage changes in 2b. Discuss how this result
compares to the answer in 2b.
of figures in The Wall Street Journal, compute the daily