CFA Practice Question

CFA Practice Question

The following 4 stocks are the components of unweighted index (series). Prices and # outstanding at market close on January 1 are given in the table below. After market close on January 1, there is a 4 for 1 stock split for stock P. Price after market close on January 2 are also given in the table below.

Stock | Price (Jan 1) | # Outstanding (Jan 1) | Price (Jan 2)
M | $12 | 2 M | $14
N | $20 | 4 M | $18
O | $32 | 3 M | $32
P | $16 | 5 M | $5

On January 1 the index had a value of 100. What is the return to the unweighted index from Jan 1 market close to January 2 market close?
A. 5.71%
B. 1.47%
C. 7.92%
Explanation: The way to calculate an unweighted index is to assume $1 has been invested in each of the stocks.

User Contributed Comments 10

User Comment
pstebelp This is not the arithmetic or geometric average!
chantal the actual mvnt of the index SB based on the arithmetic mean of the % change in price or the geographical mean of the price changes.
Doing so I get 0.75686 -1= lose of 25%

anybody knows why?
reganbaha the answer is right. Answer = 7.917%
andrewmorgan chantal dont forget the stock split
safash cn sumone do the calculations plz
emma51 Anyone?
Fannou2a ((14/12)+(18/20)+(32/32)+(20/16))/4 -1
moneyguy A little more detail would be helpful, reganbaha.
Rivermax Thanks Fannou2a
GBolt93 so unweighted and equally weighted are the same?
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