CFA Practice Question

CFA Practice Question

A Value-weighted index is based on the following information:

December 31, 2010 (base value date):
stock A is worth $5, 500 000 shares
Stock B is worth $22, 2.5 million shares
Stock C is worth $18, 1.5 million shares
December 31, 2011: stock A is worth $10; stock B is worth $15, stock C is worth $20

Calculate the Index value on December 31, 2011. (Base value = 100)
A. 116.5517
B. 85.7988
C. None of these
Explanation: New Index Value = Current Market Value/Base Value x Beginning Index Value
2010:
5 x .5 = 2.5 million
22 x 2.5 = 55 million
18 x 1.5 = 27 million
Total = 84.5 million at base value 100
2011:
10 x 0.5 = 5 million
15 x 2.5 = 37.5 million
20 x 1.5 = 30 million
Total = 72.5 million
New Index Value = 72.5/84.5 x 100 = 85.798817

User Contributed Comments 3

User Comment
djread exact same as a CPI calc
schweitzdm The first formula given does not match with the final formula used for calculating the answer in this explanation.
tung schweitzdm: why? current market value is 72.5, and base value is 84.5. I don't see why they don't match.
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