Asked by Becky Tseng on May 10, 2024
Verified
Consider the following three stocks: Stock Price Number of shares outstanding Stock A $40200 Stock B $70500 Stock C $10600\begin{array}{lll}\text { Stock } & \text { Price Number of shares}& \text { outstanding } \\\text { Stock A } & \$ 40 & 200 \\\text { Stock B } & \$ 70 & 500 \\\text { Stock C } & \$ 10 & 600\end{array} Stock Stock A Stock B Stock C Price Number of shares$40$70$10 outstanding 200500600 The price-weighted index constructed with the three stocks is
A) 30.
B) 40.
C) 50.
D) 60.
E) 70.
Price-Weighted Index
A stock market index in which each company's stock is included in proportion to its share price, meaning higher-priced stocks have more influence on the index's performance.
Stocks
Financial instruments that represent an ownership share in a corporation, entitling the holder to a proportion of the company's assets and profits, usually traded on stock exchanges.
Outstanding
Outstanding, particularly in context to shares, refers to the total number of shares of a corporation that have been issued and are held by investors, including restricted shares.
- Compute value-weighted and price-weighted indices by utilizing data on stock prices and shares outstanding.
Verified Answer
DD
Diane DeboltMay 11, 2024
Final Answer :
B
Explanation :
The price-weighted index is calculated by taking the sum of the stock prices and dividing by the number of stocks. For these three stocks, the calculation is ($40+$70+$10)/3=$120/3=$40(\$40 + \$70 + \$10) / 3 = \$120 / 3 = \$40($40+$70+$10)/3=$120/3=$40 .
Learning Objectives
- Compute value-weighted and price-weighted indices by utilizing data on stock prices and shares outstanding.