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Name CHAPTER 5--SECURITY-MARKET INDEXES

Description
Instructions Modify

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True/False 0 points Modify Remove

Question The general purpose of a market indicator series is to provide an overall indication of aggregate market changes or movements.
Answer True
False

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Question An aggregate market index can be used as a benchmark to judge the performance of professional money managers.
Answer True
False

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Question A price weighted series is disproportionately influenced by larger capitalization companies.

Answer True
False

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Question The Dow Jones Industrial Average is a value weighted average.

Answer True
False

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Question A two for one stock split causes the divisor in a price-weighted series to decline.
Answer True
False

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Question The Dow Jones Industrial Average has been criticized for being blue-chip biased.
Answer True
False

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Question Unlike the Dow Jones Industrial Average, the Nikkei-Dow Jones Average is price weighted.
Answer True
False

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Question A value weighted index automatically adjusts for stock splits.

Answer True
False

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Question The New York Stock Exchange Index is based on a sample of all of the New York Stock Exchange stocks.
Answer True
False

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Question An equally weighted indicator series is also known as an unweighted indicator series.
Answer True
False

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Question Bond-market indicator series have been around much longer than stock-market indicator series.
Answer True
False

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Question It is easier to construct an indicator series for bonds because of their relatively stable returns pattern.
Answer True
False

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Question The major U.S. stock indexes are highly correlated.

Answer True
False

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Question To solve comparability problems across countries, global equity indexes with consistent sample selection, weighting and computational
procedure have been developed.
Answer True
False

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Question There are no composite series currently available that will measure the performance of all securities (i.e. stocks and bonds) in a given
country.
Answer True
False

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Question The NYSE series should have higher rates of return and risk measures than the AMEX and OTC series.
Answer True
False

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Question There is a high correlation between the Wilshire 5000 index and the alternative NYSE series (S&P 500 and the NYSE), representing the
substantial influence of large NYSE stocks on the Wilshire 5000 index.
Answer True
False

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Question The low correlations between the U.S. and Japan confirm the benefit of global diversification.
Answer True
False

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Question The correlations among the U.S. investment-grade-bond series were very high because all rates of return for investment-grade bonds
over time are impacted by common macroeconomic variables.
Answer True
False

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Question A bond market index is easier to create than a stock market index because the universe of bonds is much broader than that of stocks.
Answer True
False

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Question The Standard & Poor's 500 index is an example of a value weighted index.
Answer True
False

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Question The Standard & Poor's International Index consists of 3 international, 19 national, and 38 international industry indexes.
Answer True
False

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Question The most common way to test a portfolio manager's performance is to compare the portfolio return to a benchmark.
Answer True
False

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Question A price-weighted index such as the DJIA is a geometric mean of current stock prices.
Answer True
False

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Question The Morgan Stanley group index for Europe, Australia, and the Far East (EAFE) is a price weighted index.
Answer True
False

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Question Which of the following is not a use of security market indicator series?
Answer To use as a benchmark of individual portfolio performance
To develop an index portfolio
To determine factors influencing aggregate security price movements
To use in the measurement of systematic risk
To use in the measurement of diversifiable risk

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Question A properly selected sample for use in constructing a market indicator series will consider the sample's source, size and
Answer Breadth.
Average beta.
Value.
Variability.
Dividend record.

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Question In a price weighted average stock market indicator series, the following type of stock has the greatest influence
Answer The stock with the highest price
The stock with the lowest price
The stock with the highest market capitalization
The stock with the lowest market capitalization
The stock with the highest P/E ratio

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Question What effect does a stock substitution or stock split have on a price-weighted series?
Answer Index remains the same, divisor will increase/decrease.
Divisor remains the same, index will increase/decrease.
Index and divisor will both remain the same.
Index and divisor will both reflect the changes (immediately).
Not enough information is provided.

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Question Which of the following is not a value-weighted series?

Answer NASDAQ Industrial Index
Dow Jones Industrial Average
Wilshire 5000 Equity Index
American Stock Exchange Series
NASDAQ Composite Index

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Question An example of a value weighted stock market indicator series is the

Answer Dow Jones Industrial Average.
Nikkei Dow Jones Average.
S & P 500 Index.
Value Line Index.
Shearson Lehman Hutton Index.

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Question In a value weighted index

Answer Exchange rate fluctuations have a large impact.
Exchange rate fluctuations have a small impact.
Large companies have a disproportionate influence on the index.
Small companies have an exaggerated effect on the index.
None of the above

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Question Of the following indices, which includes the most comprehensive list of stocks?
Answer New York Exchange Index
Standard and Poor's Index
American Stock Exchange Index
NASDAQ Series Index
Wilshire Equity Index

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Question The Value Line Composite Average is calculated using the ____ of percentage price changes.
Answer arithmetic average
harmonic average
expected value
geometric average
logarithmic average

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Question Which of the following is not a global equity indicator series?

Answer Morgan Stanley Capital International Indexes
Dow Jones World Stock Index
FT/S & P-Actuaries World Indexes
Merrill Lynch-Wilshire World Indexes
None of the above (that is, each is a global equity indicator series)

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Question The Ryan Treasury Index is an example of a

Answer Bond market indicator series.
Stock market indicator series.
Composite security market series.
World market series.
Commodity market series.

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Question Studies of correlations among monthly equity price index returns have found:
Answer Low correlations between various U.S. equity indexes
High correlations between various U.S. equity indexes
High correlations between U.S. and non-U.S. equity indexes
Negative correlations between various U.S. equity indexes
None of the above

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Question Which of the following is true of the various market index series?
Answer A low correlation exists between the U.S. indexes and those of Japan.
The NYSE series have higher rates of return and risk measures than the AMEX and OTC series.
A low correlation exists between alternative series that include almost all NYSE stocks.
A low correlation exists between alternative bond series.
None of the above

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Question Which of the following are factors that make it difficult to create and maintain a bond index?
Answer The universe of bonds is broader than stocks.
The universe of bonds is constantly changing due to new issues, bond maturities, calls, and bond sinking funds.
It is difficult to derive value, up-to-date prices.
Choices a and c
All of the above

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Question Which of the following is not a U.S. investment-grade bond index?

Answer Merrill Lynch
Ryan Treasury
Salomon Brothers
Lehman Brothers
None of the above (that is, all are U.S. investment-grade bond indexes)

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Question The following are examples of Style Indexes

Answer Small-cap growth
Mid-cap value
Small-cap value
All of the above
None of the above

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Question Studies of correlations among monthly U.S. bond price index returns have found:
Answer Low correlations between investment grade bonds and high yield bonds
High correlations between investment grade bonds and high yield bonds
Low correlations between various investment grade bond indexes
Negative correlations between investment grade bonds and high yield bonds
None of the above

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Question Index movements are influenced by differential prices of the components in a(n)
Answer Equally-weighted index.
Price-weighted index.
Unweighted index.
Value-weighted index.
All of the above

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Question A style index created to track ethical funds is known as:

Answer Green index
SRI index
EAFE index
Freedom index
Ethical index

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Question Which index is created by first deriving the initial total market value of all stocks used in the index?
Answer Equally-weighted index.
Price-weighted index.
Unweighted index.
Value-weighted index.
All of the above

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Question The actual index movements are typically based on the arithmetic mean of the percent changes in price or value for the stocks in the
Answer Price-weighted index.
Unweighted index.
Value-weighted index.
All of the above
None of the above

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Question Which of the fundamental factors was not used in the Fundamental Index created by Research Affiliates, Inc.?
Answer Sales
Profits (cash flow)
Leverage (debt/equity)
Net assets (book value)
Dividends

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Question Exhibit 5.1

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Number of shares Closing Prices (per share)

Companies outstanding Day T Day T + 1
1 2,000 $30.00 $25.00
2 7,000 55.00 60.00
3 5,000 20.00 25.00
4 4,000 40.00 45.00

Refer to Exhibit 5.1. Assume that a stock price-weighted indicator consisted of the four issues with their prices. What are the values of the stock
indicator for Day T and T + 1 and what is the percentage change?
Answer 36.25, 38.75, 6.9%
38.75, 36.25, -6.9%
100, 106.9, 6.9%
107.48, 106.33, 1.15%
None of the above
Correct Feedback Closing Prices (per share)
Companies Day T Day T + 1
1 30.00 25.00
2 55.00 60.00
3 20.00 25.00
4 40.00 45.00

36.25 38.75

Therefore the index closed up 38.75/36.25 - 1 = 6.9%

Incorrect Feedback Closing Prices (per share)
Companies Day T Day T + 1
1 30.00 25.00
2 55.00 60.00
3 20.00 25.00
4 40.00 45.00

36.25 38.75

Therefore the index closed up 38.75/36.25 - 1 = 6.9%

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Question Exhibit 5.1

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Number of shares Closing Prices (per share)

Companies outstanding Day T Day T + 1
1 2,000 $30.00 $25.00
2 7,000 55.00 60.00
3 5,000 20.00 25.00
4 4,000 40.00 45.00

Refer to Exhibit 5.1. For a value-weighted series, assume that Day T is the base period and the base value is 100. What is the new index value for
Day T + 1 and what is the percentage change in the index from Day T?
Answer 106.33, 6.33%
107.48, 7.48%
109.93, 9.93%
108.7, 8.7%
None of the above
Correct Feedback Number of shares Price Market
Companies outstanding Day T value
1 2,000 30.00 60,000
2 7,000 55.00 385,000
3 5,000 20.00 100,000
4 4,000 40.00 160,000
705,000

Base value equal to an index of 100

Number of shares Price Market

Companies outstanding Day T + 1 value
1 2,000 25.00 70,000
2 7,000 60.00 420,000
3 5,000 25.00 125,000
4 4,000 45.00 180,000
775,000

Therefore the index closed up 9.93%

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Incorrect Feedback Number of shares Price Market

Companies outstanding Day T value
1 2,000 30.00 60,000
2 7,000 55.00 385,000
3 5,000 20.00 100,000
4 4,000 40.00 160,000
705,000

Base value equal to an index of 100

Number of shares Price Market

Companies outstanding Day T + 1 value
1 2,000 25.00 70,000
2 7,000 60.00 420,000
3 5,000 25.00 125,000
4 4,000 45.00 180,000
775,000

Therefore the index closed up 9.93%

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Question Exhibit 5.1

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Number of shares Closing Prices (per share)

Companies outstanding Day T Day T + 1
1 2,000 $30.00 $25.00
2 7,000 55.00 60.00
3 5,000 20.00 25.00
4 4,000 40.00 45.00

Refer to Exhibit 5.1. Compute an unweighted price indicator series, using geometric means. What is the percentage change in the index from Day T
to Day T+1? Assume a base index value of 100 on Day T.
Answer 5.35%
7.48%
9.93%
6.33%
None of the above
Correct Feedback Price Price
Companies Day T Day T + 1 (1 + return)
1 30 25 0.83
2 55 60 1.09
3 20 25 1.25
4 40 45 1.125

1/4
Index value day T + 1 = [(0.83)(1.09)(1.25)(1.125)] (100) = 106.33

Percentage change in index = 6.33%

Incorrect Feedback Price Price
Companies Day T Day T + 1 (1 + return)
1 30 25 0.83
2 55 60 1.09
3 20 25 1.25
4 40 45 1.125

Index value day T + 1 = [(0.83)(1.09)(1.25)(1.125)]1/4 (100) = 106.33

Percentage change in index = 6.33%

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Question Exhibit 5.2

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Stock Price # Shares

X Y Z X Y Z
Jan. 13, 2005 20 40 30 1000 2000 1000*
Jan. 14, 2005 25 42 18 1000 2000 2000
Jan. 15, 2005 27 45 8 1000** 2000 2000
Jan. 16, 2005 20 40 10 3000 2000 2000

*2:1 Split on Stock Z after Close on Jan. 13, 2005

**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005

Refer to Exhibit 5.2. Calculate a price weighted average for January 13th.
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Answer 32
30
36.13
34
None of the above
Correct Feedback January 13 index = (20 + 40 + 30) ¸ 3 = 30
Incorrect Feedback January 13 index = (20 + 40 + 30) ¸ 3 = 30
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Question Exhibit 5.2

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Stock Price # Shares

X Y Z X Y Z
Jan. 13, 2005 20 40 30 1000 2000 1000*
Jan. 14, 2005 25 42 18 1000 2000 2000
Jan. 15, 2005 27 45 8 1000** 2000 2000
Jan. 16, 2005 20 40 10 3000 2000 2000

*2:1 Split on Stock Z after Close on Jan. 13, 2005

**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005

Refer to Exhibit 5.2. What is the divisor at the beginning of January 14th?
Answer 3.0
2.5
2.2734
1.9375
None of the above
Correct Feedback January 14 adjusted divisor = (20 + 40 + 15) ¸ X = 30
X = 2.5
Incorrect Feedback January 14 adjusted divisor = (20 + 40 + 15) ¸ X = 30
X = 2.5
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Question Exhibit 5.2

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Stock Price # Shares

X Y Z X Y Z
Jan. 13, 2005 20 40 30 1000 2000 1000*
Jan. 14, 2005 25 42 18 1000 2000 2000
Jan. 15, 2005 27 45 8 1000** 2000 2000
Jan. 16, 2005 20 40 10 3000 2000 2000

*2:1 Split on Stock Z after Close on Jan. 13, 2005

**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005

Refer to Exhibit 5.2. Calculate a price weighted average for January 14th.
Answer 32
30
36.13
34
None of the above
Correct Feedback January 14 index = (25 + 42 + 18) ¸ 2.5 = 34
Incorrect Feedback January 14 index = (25 + 42 + 18) ¸ 2.5 = 34
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Question Exhibit 5.2

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Stock Price # Shares

X Y Z X Y Z
Jan. 13, 2005 20 40 30 1000 2000 1000*
Jan. 14, 2005 25 42 18 1000 2000 2000
Jan. 15, 2005 27 45 8 1000** 2000 2000
Jan. 16, 2005 20 40 10 3000 2000 2000

*2:1 Split on Stock Z after Close on Jan. 13, 2005

**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005

Refer to Exhibit 5.2. Calculate a price weighed average for January 15th.
Answer 30
36.13
32
34
None of the above
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Correct Feedback January 15 index = (27 + 45 + 8) ¸ 2.5 = 32

Incorrect Feedback January 15 index = (27 + 45 + 8) ¸ 2.5 = 32
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Question Exhibit 5.2

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Stock Price # Shares

X Y Z X Y Z
Jan. 13, 2005 20 40 30 1000 2000 1000*
Jan. 14, 2005 25 42 18 1000 2000 2000
Jan. 15, 2005 27 45 8 1000** 2000 2000
Jan. 16, 2005 20 40 10 3000 2000 2000

*2:1 Split on Stock Z after Close on Jan. 13, 2005

**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005

Refer to Exhibit 5.2. What is the divisor at the beginning of January 16th?
Answer 1.9375
3.0
2.5
2.2734
None of the above
Correct Feedback January 16 divisor = (9 + 45 + 8) ¸ X = 32
X = 1.9375
Incorrect Feedback January 16 divisor = (9 + 45 + 8) ¸ X = 32
X = 1.9375
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Question Exhibit 5.2

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Stock Price # Shares

X Y Z X Y Z
Jan. 13, 2005 20 40 30 1000 2000 1000*
Jan. 14, 2005 25 42 18 1000 2000 2000
Jan. 15, 2005 27 45 8 1000** 2000 2000
Jan. 16, 2005 20 40 10 3000 2000 2000

*2:1 Split on Stock Z after Close on Jan. 13, 2005

**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005

Refer to Exhibit 5.2. Calculate a price weighted average for January 16th.
Answer 30
32
34
36.13
None of the above
Correct Feedback January 16 index = (20 + 40 + 10) ¸ 1.9375 = 36.13
Incorrect Feedback January 16 index = (20 + 40 + 10) ¸ 1.9375 = 36.13

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Question Exhibit 5.2

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Stock Price # Shares

X Y Z X Y Z
Jan. 13, 2005 20 40 30 1000 2000 1000*
Jan. 14, 2005 25 42 18 1000 2000 2000
Jan. 15, 2005 27 45 8 1000** 2000 2000
Jan. 16, 2005 20 40 10 3000 2000 2000

*2:1 Split on Stock Z after Close on Jan. 13, 2005

**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005

Refer to Exhibit 5.2. Calculate a value weighted index for Jan. 13th if the initial index value is 100.
Answer 111.54
100
102.31
123.07
None of the above
Correct Feedback January 13 index = 100 by definition
Incorrect Feedback January 13 index = 100 by definition
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Question Exhibit 5.2

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Stock Price # Shares

X Y Z X Y Z
Jan. 13, 2005 20 40 30 1000 2000 1000*
Jan. 14, 2005 25 42 18 1000 2000 2000
Jan. 15, 2005 27 45 8 1000** 2000 2000
Jan. 16, 2005 20 40 10 3000 2000 2000

*2:1 Split on Stock Z after Close on Jan. 13, 2005

**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005

Refer to Exhibit 5.2. Calculate a value weighted index for Jan. 14th if the initial index value is 100.
Answer 100
102.31
123.07
111.54
None of the above
Correct Feedback Base Value = (20)(1000) + (40)(2000) + (30)(1000) = $130,000

January 14 Value = (25)(1000) + (42)(2000) + (18)(2000) = 145,000

Index = (145,000 ¸ 130,000) ´ 100= 111.5385

Incorrect Feedback Base Value = (20)(1000) + (40)(2000) + (30)(1000) = $130,000

January 14 Value = (25)(1000) + (42)(2000) + (18)(2000) = 145,000

Index = (145,000 ¸ 130,000) ´ 100= 111.5385

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Question Exhibit 5.2

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Stock Price # Shares

X Y Z X Y Z
Jan. 13, 2005 20 40 30 1000 2000 1000*
Jan. 14, 2005 25 42 18 1000 2000 2000
Jan. 15, 2005 27 45 8 1000** 2000 2000
Jan. 16, 2005 20 40 10 3000 2000 2000

*2:1 Split on Stock Z after Close on Jan. 13, 2005

**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005

Refer to Exhibit 5.2. Calculate a value weighted index for January 15th if the initial index value is 100.
Answer 102.31
100
123.07
111.54
None of the above
Correct Feedback January 15 Value = (27)(1000) + (45)(2000) + (8)(2000) = 133,000

Index = (133,000 ¸ 130,000) ´ 100 = 102.3077

Incorrect Feedback January 15 Value = (27)(1000) + (45)(2000) + (8)(2000) = 133,000

Index = (133,000 ¸ 130,000) ´ 100 = 102.3077

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Question Exhibit 5.2

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Stock Price # Shares

X Y Z X Y Z
Jan. 13, 2005 20 40 30 1000 2000 1000*
Jan. 14, 2005 25 42 18 1000 2000 2000
Jan. 15, 2005 27 45 8 1000** 2000 2000
Jan. 16, 2005 20 40 10 3000 2000 2000

*2:1 Split on Stock Z after Close on Jan. 13, 2005

**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005

Refer to Exhibit 5.2. Calculate a value weighted index for January 16th if the initial index value is 100.
Answer 123.07
100.00
102.31
111.54
None of the above
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Correct Feedback January 16 Value = (20)(2000) + (40)(2000) + (10)(2000) = 160,000

Index = (160,000 ¸ 130,000) ´ 100 = 123.0769

Incorrect Feedback January 16 Value = (20)(2000) + (40)(2000) + (10)(2000) = 160,000

Index = (160,000 ¸ 130,000) ´ 100 = 123.0769

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Question Exhibit 5.3

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Year % Price Change for GB Industries

2000 10.0%
2001 12.0%
2002 10.0%
2003 11.0%
2004 6.0%

Refer to Exhibit 5.3. Calculate the average annual rate of change for GB Industries for the 5 year period using the arithmetic mean.
Answer 0.098%
9.80%
8.50%
8.00%
89.00%
Correct Feedback The Arithmetic Average is: (10 + 12 + 10 + 11 + 6) ¸ 5 = 9.8%
Incorrect Feedback The Arithmetic Average is: (10 + 12 + 10 + 11 + 6) ¸ 5 = 9.8%
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Question Exhibit 5.3

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Year % Price Change for GB Industries

2000 10.0%
2001 12.0%
2002 10.0%
2003 11.0%
2004 6.0%

Refer to Exhibit 5.3. Calculate the average annual rate of change for GB Industries for the 5 year period using the geometric mean.
Answer 9.7800%
0.0978%
9.0700%
0.0970%
3.6400%
Correct Feedback 1/5
The Geometric Average is: [(1.10)(1.12)(1.10)(1.11)(1.06)] - 1 = 9.78%
Incorrect Feedback 1/5
The Geometric Average is: [(1.10)(1.12)(1.10)(1.11)(1.06)] - 1 = 9.78%
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Question Exhibit 5.4

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Year % Price Change for Stock Index

2000 8.0%
2001 10.0%
2002 -14.0%
2003 20.0%
2004 -10.0%

Refer to Exhibit 5.4. Calculate the average annual rate of change for this index for the 5 year period using the arithmetic mean.
Answer 0.28%
1.28%
2.80%
3.58%
6.38%
Correct Feedback The Arithmetic Average is: (8 + 10 - 14 + 20 - 10) ¸ 5 = 2.8%
Incorrect Feedback The Arithmetic Average is: (8 + 10 - 14 + 20 - 10) ¸ 5 = 2.8%
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Question Exhibit 5.4

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Year % Price Change for Stock Index

2000 8.0%
2001 10.0%
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2002 -14.0%
2003 20.0%
2004 -10.0%

Refer to Exhibit 5.4. Calculate the average annual rate of change for this index for the 5 year period using the geometric mean.
Answer 0.09%
1.99%
3.99%
4.50%
4.67%
Correct Feedback 1/5
The Geometric Average is: [(1.08)(1.10)(.86)(1.20)(.9)] - 1 = 1.99%
Incorrect Feedback 1/5
The Geometric Average is: [(1.08)(1.10)(.86)(1.20)(.9)] - 1 = 1.99%
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Question Exhibit 5.5

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

31-Dec-03 31-Dec-03 31-Dec-04 31-Dec-04

Stock Price Shares Price Shares
W $ 75.00 10000 $50.00 20000
X $150.00 5000 $65.00 10000
Y $ 25.00 20000 $35.00 20000
Z $ 40.00 25000 $50.00 25000

Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.

Refer to Exhibit 5.5. Calculate the price weighted series for Dec 31, 2003, prior to the splits.
Answer 81.69
100.0
72.5
121.25
119.25
Correct Feedback Price weighted series Dec 2003 = (75 + 150 + 25 + 40)/4 = 72.5
Incorrect Feedback Price weighted series Dec 2003 = (75 + 150 + 25 + 40)/4 = 72.5
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Question Exhibit 5.5

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31-Dec-03 31-Dec-03 31-Dec-04 31-Dec-04

Stock Price Shares Price Shares
W $ 75.00 10000 $50.00 20000
X $150.00 5000 $65.00 10000
Y $ 25.00 20000 $35.00 20000
Z $ 40.00 25000 $50.00 25000

Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.

Refer to Exhibit 5.5. Calculate the price weighted series for Dec 31, 2003, after the splits.
Answer 72.5
100.0
119.25
121.25
81.69
Correct Feedback Post split series = 72.5 = (37.5 + 75 + 25 + 40)/X

The new divisor, X = 2.4483.

Incorrect Feedback Post split series = 72.5 = (37.5 + 75 + 25 + 40)/X

The new divisor, X = 2.4483.

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Question Exhibit 5.5

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31-Dec-03 31-Dec-03 31-Dec-04 31-Dec-04

Stock Price Shares Price Shares
W $ 75.00 10000 $50.00 20000
X $150.00 5000 $65.00 10000
Y $ 25.00 20000 $35.00 20000
Z $ 40.00 25000 $50.00 25000

Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.

Refer to Exhibit 5.5. Calculate the price weighted series for Dec 31, 2004.
 13 of 18

Answer 121.25
119.25
100.0
72.5
81.69
Correct Feedback Price weighted series Dec 2004 = (50 + 65 + 35 + 50)/2.4483 = 81.69
Incorrect Feedback Price weighted series Dec 2004 = (50 + 65 + 35 + 50)/2.4483 = 81.69
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Question Exhibit 5.5

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31-Dec-03 31-Dec-03 31-Dec-04 31-Dec-04

Stock Price Shares Price Shares
W $ 75.00 10000 $50.00 20000
X $150.00 5000 $65.00 10000
Y $ 25.00 20000 $35.00 20000
Z $ 40.00 25000 $50.00 25000

Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.

Refer to Exhibit 5.5. Calculate the percentage return in the price weighted series for the period Dec 31, 2000 to Dec 31, 2004.
Answer 12.68%
20.00%
21.76%
33.33%
40.00%
Correct Feedback Return on series = (81.69 - 72.5)/72.5 = 12.68%
Incorrect Feedback Return on series = (81.69 - 72.5)/72.5 = 12.68%
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Question Exhibit 5.5

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31-Dec-03 31-Dec-03 31-Dec-04 31-Dec-04

Stock Price Shares Price Shares
W $ 75.00 10000 $50.00 20000
X $150.00 5000 $65.00 10000
Y $ 25.00 20000 $35.00 20000
Z $ 40.00 25000 $50.00 25000

Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.

Refer to Exhibit 5.5. Calculate the value weighted index for Dec 31, 2003, prior to the splits. Assume a base index value of 100. The base year is
Dec 31, 2003.
Answer 120.0
81.69
72.5
100.0
121.25
Correct Feedback Value weighted series Dec 2003 =

Incorrect Feedback Value weighted series Dec 2003 =

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Question Exhibit 5.5

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31-Dec-03 31-Dec-03 31-Dec-04 31-Dec-04

Stock Price Shares Price Shares
W $ 75.00 10000 $50.00 20000
X $150.00 5000 $65.00 10000
Y $ 25.00 20000 $35.00 20000
Z $ 40.00 25000 $50.00 25000

Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.

Refer to Exhibit 5.5. Calculate the value weighted index for Dec 31, 2003, after the splits. Assume a base index value of 100. The base year is Dec
31, 2003.
Answer 72.5
81.69
100.0
120.0
121.25
 14 of 18

Correct Feedback Value weighted post split = 100. Not affected by splits.
Incorrect Feedback Value weighted post split = 100. Not affected by splits.
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Question Exhibit 5.5

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31-Dec-03 31-Dec-03 31-Dec-04 31-Dec-04

Stock Price Shares Price Shares
W $ 75.00 10000 $50.00 20000
X $150.00 5000 $65.00 10000
Y $ 25.00 20000 $35.00 20000
Z $ 40.00 25000 $50.00 25000

Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.

Refer to Exhibit 5.5. Calculate the value weighted index for Dec 31, 2004. Assume a base index value of 100. The base year is Dec 31, 2003.
Answer 121.25
100.0
81.69
72.5
120.0
Correct Feedback Value weighted series Dec 2004 =

Incorrect Feedback Value weighted series Dec 2004 =

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Question Exhibit 5.5

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31-Dec-03 31-Dec-03 31-Dec-04 31-Dec-04

Stock Price Shares Price Shares
W $ 75.00 10000 $50.00 20000
X $150.00 5000 $65.00 10000
Y $ 25.00 20000 $35.00 20000
Z $ 40.00 25000 $50.00 25000

Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.

Refer to Exhibit 5.5. Calculate the percentage return in the value weighted index for the period Dec 31, 2003 to Dec 31, 2004.
Answer 12.68%
20.00%
21.76%
33.33%
40.00%
Correct Feedback Since the base value is 100 and the current index value is 120, the percentage return is 20%.
Incorrect Feedback Since the base value is 100 and the current index value is 120, the percentage return is 20%.
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Question Exhibit 5.5

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31-Dec-03 31-Dec-03 31-Dec-04 31-Dec-04

Stock Price Shares Price Shares
W $ 75.00 10000 $50.00 20000
X $150.00 5000 $65.00 10000
Y $ 25.00 20000 $35.00 20000
Z $ 40.00 25000 $50.00 25000

Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.

Refer to Exhibit 5.5. Calculate the unweighted index for Dec 31, 2003, prior to the splits. Assume a base index value of 100. The base year is Dec
31, 2003.
Answer 100.0
200.0
150.0
120.0
175.0
Correct Feedback The index value Dec 2003 is 100
Incorrect Feedback The index value Dec 2003 is 100
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 15 of 18

Question Exhibit 5.5

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

31-Dec-03 31-Dec-03 31-Dec-04 31-Dec-04

Stock Price Shares Price Shares
W $ 75.00 10000 $50.00 20000
X $150.00 5000 $65.00 10000
Y $ 25.00 20000 $35.00 20000
Z $ 40.00 25000 $50.00 25000

Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.

Refer to Exhibit 5.5. Calculate the unweighted index for Dec 31, 2003, after the splits. Assume a base index value of 100. The base year is Dec 31,
2003.
Answer 110.0
200.0
100.0
120.0
150.0
Correct Feedback Post split the index value is 100
Incorrect Feedback Post split the index value is 100
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Question Exhibit 5.5

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31-Dec-03 31-Dec-03 31-Dec-04 31-Dec-04

Stock Price Shares Price Shares
W $ 75.00 10000 $50.00 20000
X $150.00 5000 $65.00 10000
Y $ 25.00 20000 $35.00 20000
Z $ 40.00 25000 $50.00 25000

Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.

Refer to Exhibit 5.5. Calculate the unweighted index (geometric mean) for Dec 31, 2004. Assume a base index value of 100. The base year is Dec
31, 2003.
Answer 119.25
121.25
151.25
95.25
100.25
Correct Feedback 1/4
Index Dec 2004 = (1.33 + 0.87 + 1.40 + 1.25) (100) = 119.25
Incorrect Feedback 1/4
Index Dec 2004 = (1.33 + 0.87 + 1.40 + 1.25) (100) = 119.25
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Question Exhibit 5.5

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31-Dec-03 31-Dec-03 31-Dec-04 31-Dec-04

Stock Price Shares Price Shares
W $ 75.00 10000 $50.00 20000
X $150.00 5000 $65.00 10000
Y $ 25.00 20000 $35.00 20000
Z $ 40.00 25000 $50.00 25000

Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.

Refer to Exhibit 5.5. Calculate the percentage return in the unweighted index (geometric mean) for the period Dec 31, 2003 to Dec 31, 2004.
Assume a base index value of 100. Base year is Dec 31, 2003.
Answer 19.25%
21.25%
51.25%
5.25%
100.25%
Correct Feedback The return on the index is 19.25%
Incorrect Feedback The return on the index is 19.25%
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Question Exhibit 5.6

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Price
Stock Number of Day T Day T + 1
Shares
Q 5,000,000 80 95
R 8,000,000 60 55
S 15,000,000 20 24
 16 of 18

Refer to Exhibit 5.6. Calculate a price weighted average for Day T.

Answer 46.20
53.33
54.12
92.39
108.23
Correct Feedback (80 + 60 + 20)/3 = 53.33
Incorrect Feedback (80 + 60 + 20)/3 = 53.33
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Question Exhibit 5.6

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Price
Stock Number of Shares Day T Day T + 1
Q 5,000,000 80 95
R 8,000,000 60 55
S 15,000,000 20 24

Refer to Exhibit 5.6. Calculate a value weighted average for Day T + 1. Assume a base index value of 100 on Day T.
Answer 46.20
53.33
54.12
92.39
108.23
Correct Feedback Base Value = $80(5,000,000) + $60(8,000,000) + $20(15,000,000) = 1,380,000,000

Day T + 1 Value = $95(5,000,000) + $55(8,000,000) + $24(15,000,000) = 1,275,000,000

Value Index = (1,275,000,000/1,380,000,000)*100 = 92.39

Incorrect Feedback Base Value = $80(5,000,000) + $60(8,000,000) + $20(15,000,000) = 1,380,000,000

Day T + 1 Value = $95(5,000,000) + $55(8,000,000) + $24(15,000,000) = 1,275,000,000

Value Index = (1,275,000,000/1,380,000,000)*100 = 92.39

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Question Exhibit 5.6

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Price
Stock Number of Shares Day T Day T + 1
Q 5,000,000 80 95
R 8,000,000 60 55
S 15,000,000 20 24

Refer to Exhibit 5.6. If an equal-weighted index is constructed on Day T with $10,000 in each stock, what is the percentage change in wealth for this
index on Day T + 1? Assume a base index value of 100 on Day T.
Answer 8.65%
10.14%
15.69%
30.42%
47.08%
Correct Feedback Q%: (95 - 80)/80 = 18.75%
R%: (55 - 60)/60 = -8.33%
S%: (24 - 20)/20 = 20.00%

Index on Day T + 1: [(18.75% - 8.33% + 20.00%)/3]*100 + 100 = 110.14

Percentage change: (110.14 - 100)/100 = 10.14%

Incorrect Feedback Q%: (95 - 80)/80 = 18.75%
R%: (55 - 60)/60 = -8.33%
S%: (24 - 20)/20 = 20.00%

Index on Day T + 1: [(18.75% - 8.33% + 20.00%)/3]*100 + 100 = 110.14

Percentage change: (110.14 - 100)/100 = 10.14%

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Question Exhibit 5.6

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Price
Stock Number of Shares Day T Day T + 1
Q 5,000,000 80 95
R 8,000,000 60 55
S 15,000,000 20 24
 17 of 18

Refer to Exhibit 5.6. Compute the arithmetic mean of the price change of Stocks Q, R, and S from days T to T + 1.
Answer 8.65%
10.14%
15.69%
30.42%
47.08%
Correct Feedback Q%: (95 - 80)/80 = 18.75%
R%: (55 - 60)/60 = -8.33%
S%: (24 - 20)/20 = 20.00%

(18.75% - 8.33% + 20.00%)/3 = 10.14%

Incorrect Feedback Q%: (95 - 80)/80 = 18.75%
R%: (55 - 60)/60 = -8.33%
S%: (24 - 20)/20 = 20.00%

(18.75% - 8.33% + 20.00%)/3 = 10.14%

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Question Exhibit 5.6

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Price
Stock Number of Shares Day T Day T + 1
Q 5,000,000 80 95
R 8,000,000 60 55
S 15,000,000 20 24

Refer to Exhibit 5.6. Compute the geometric mean of the price change of Stocks Q, R, and S from days T to T + 1.
Answer 9.32%
10.14%
15.57%
30.63%
54.37%
Correct Feedback Q%: (95 - 80)/80 = 18.75%
R%: (55 - 60)/60 = -8.33%
S%: (24 - 20)/20 = 20.00%

1/3
Geometric Average = [(1.1875)(0.9167)(1.2000)] - 1 = 0.0932 or 9.32%
Incorrect Feedback Q%: (95 - 80)/80 = 18.75%
R%: (55 - 60)/60 = -8.33%
S%: (24 - 20)/20 = 20.00%

1/3
Geometric Average = [(1.1875)(0.9167)(1.2000)] - 1 = 0.0932 or 9.32%
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Question Exhibit 5.7

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Number December 31, 2011 December 31, 2012

Stock of Shares Price Value Price Value
A 5,000 $20 $100,000 $25 $125,000
B 8,000 $40 $320,000 $42 $304,000
C 15,000 $10 $150,000 $15 $225,000

Refer to Exhibit 5.7. What would be the total percentage change in an equally weighted portfolio of ABC?
Answer 13.33%
18.67%
23.41%
26.67%
36.83%
Correct Feedback Number December 31, 2011 December 31, 2012
Stock of Shares Price Value Price Value % Change
A 5,000 $20 $100,000 $25 $125,000 25.0
B 8,000 $40 $320,000 $42 $304,000 5.0
C 15,000 $10 $150,000 $15 $225,000 50.0

Total percent change for equally weighted ABC = (25 + 5 + 50)/3 = 26.67%
Incorrect Feedback Number December 31, 2011 December 31, 2012
Stock of Shares Price Value Price Value % Change
A 5,000 $20 $100,000 $25 $125,000 25.0
B 8,000 $40 $320,000 $42 $304,000 5.0
C 15,000 $10 $150,000 $15 $225,000 50.0

Total percent change for equally weighted ABC = (25 + 5 + 50)/3 = 26.67%
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 18 of 18

Question Exhibit 5.7

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Number December 31, 2011 December 31, 2012

Stock of Shares Price Value Price Value
A 5,000 $20 $100,000 $25 $125,000
B 8,000 $40 $320,000 $42 $304,000
C 15,000 $10 $150,000 $15 $225,000

Refer to Exhibit 5.7. If the December 31, 2011 equal weighted index for ABC was 100, what is the equal weighted index for ABC on December 31,
2012?
Answer 108.35
114.74
120.19
126.67
131.54
Correct Feedback Equal Weighted Index = 100(1.2667) = 126.67
Incorrect Feedback Equal Weighted Index = 100(1.2667) = 126.67
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Question Exhibit 5.7

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Number December 31, 2011 December 31, 2012

Stock of Shares Price Value Price Value
A 5,000 $20 $100,000 $25 $125,000
B 8,000 $40 $320,000 $42 $304,000
C 15,000 $10 $150,000 $15 $225,000

Refer to Exhibit 5.7. If the December 31, 2011 value weighted index for ABC was 100, what is the value weighted index for ABC on December 31,
2012?
Answer 108.35
114.74
120.19
126.67
131.54
Correct Feedback Number December 31, 2011 December 31, 2012
Stock of Shares Price Value Price Value
A 5,000 $20 $100,000 $25 $125,000
B 8,000 $40 $320,000 $42 $304,000
C 15,000 $10 $150,000 $15 $225,000
$570,000 $654,000

Market Value Weighted Index = (100)($654,000/$570,000) = 114.74

Incorrect Feedback Number December 31, 2011 December 31, 2012
Stock of Shares Price Value Price Value
A 5,000 $20 $100,000 $25 $125,000
B 8,000 $40 $320,000 $42 $304,000
C 15,000 $10 $150,000 $15 $225,000
$570,000 $654,000

Market Value Weighted Index = (100)($654,000/$570,000) = 114.74

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