1111 Words Oct 4th, 2013 5 Pages
CHAPTER 5

1(a). Given a three security series and a price change from period t to t+1, the percentage change in the series would be 42.85 percent.

Period t Period t+1 A \$ 60 \$ 80 B 20 35 C 18 25 Sum \$ 98 \$140

Divisor 3 3

Average 32.67 46.67

1(b). Period t Stock Price/Share # of Shares Market Value A \$60 1,000,000 \$ 60,000,000 B 20 10,000,000 200,000,000 C 18 30,000,000 540,000,000 Total \$800,000,000

Period t+1 Stock Price/Share # of Shares Market Value A \$80 1,000,000 \$ 80,000,000 B 35 10,000,000 350,000,000 C 25 30,000,000 750,000,000 Total \$1,180,000,000

1(c). The percentage change for the price-weighted series is a simple average of the differences in price from one period to
3. Student Exercise

4(a).

Day 1 Company Price/Share

A 12

B 23

C 52

Day 2

(Before Split) (After Split) Company Price/Share Price/Share

A 10 10

B 22 44

C 55 55

Day 3

(Before Split) (After Split) Company Price/Share Price/Share

A 14 14

B 46 46

C 52 26

Day 4

Company Price/Share

A 13

B 47

C 25

Day 5

Company Price/Share

A 12

B 45

C 26

4(b). Since the index is a price-weighted average, the higher priced stocks carry more weight. But when a split occurs, the new divisor ensures that the new value for the series is the same as it would have been without the split. Hence, the main effect of a split is just a repositioning of the relative weight that a particular stock carries in determining the index. For example, a 10% price change for company B would carry more weight in determining the percent change in the index in Day 3 after the reverse split that increased its price, than its weight on Day 2.

4(c). Student Exercise

5(a). Base = (\$12 x 500) + (\$23 x 350) + (\$52 x 250) = \$6,000 + \$8,050 + \$13,000 = \$27,050

Day 1 = (\$12 x 500) + (\$23 x 350) + (\$52 x 250) = \$6,000 + \$8,050 + \$13,000 = \$27,050

Index1 = (\$27,050/\$27,050) x 10 = 10

Day 2 = (\$10 x 500) + (\$22 x 350) + (\$55 x 250) =

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