You have a price-weighted index made up of two stocks, A and B) The price of A equals $30 and the price of B equals $70. What is the current value of this index? Also, what will be the percentage change in the index resulting from a 10 % increase only in the price of A? A 10% increase only in the price of B?
What will be an ideal response?
The current value of the index is 50. This is determined by taking the current stock prices and dividing by two, similar to the construction of the DJIA) If the price of A increases by 10% this raises A's price to $33 and the value of the index to 51.5, or an increase of 3%. If only the price of stock B increases by 10%, the price of B will rise to $77, and the index will have a value of 53.5, or an increase of 7%.
You might also like to view...
Refer to Figure 8.2. Holding other variables constant, a decrease in households' wealth will result in a
A) movement from point A to point B. B) movement from point B to point A. C) shift from curve S1 to curve S2. D) shift from curve S2 to curve S1.
Wealth creating transactions are less likely to occur
a. Without private property rights b. Without contract enforcement c. Both a and b d. None of the above