Question

A benchmark market value index is comprised of three stocks. Yesterday the three stocks were priced at $10, $15, and $57. The number of outstanding shares for each is 628,000 shares, 519,000 shares, and 207,000 shares, respectively. If the stock prices changed to $19, $27, and $66 today respectively, what is the one day rate of return on the index?

Answer 1

Answer:

57%

Explanation:

The computation of one day rate of return on the index is given below:-

Index Value = Sum of (Outstanding Shares × Share Price)

Return = (Index Value Today - Index Value Yesterday) ÷ Index Value Yesterday

Index Value (Yesterday) = ($10 × 628,000) + ($15 × 519,000) + ($57 × 207,000)

= $6,280,000 + $7,785,000 + $11,799,000

= $25,864,000

Index Value (Today) = ($19 × 628,000) + ($27 × 519,000) + ($66 × 207,000)

= $11,932,000 + 14,013,000 + 13,662,000

= $39,607,000

One day rate of return on the index = Index Value (Today) - Index Value (Yesterday) ÷ Index Value (Yesterday)

= ($39,607,000 - $25,864,000) ÷ $25,864,000

= $14,743,000 ÷ $25,864,000

= 57%