Equity Investments MCQ - Equity Investments Section 1

26 Peter gathers the following information for a market-capitalization- weighted index comprised of securities ABC, DEF and GHI:

Security	Beginning of Period Price	End of Period Price	Dividends per share	Share Outstanding
ABC	1,500	1,700	10	6,000
DEF	2,500	1,500	15	8,500
GHI	500	600	10	10,000

The total return of the index is closest to:

The total return of the market-capitalization-weighted index is calculated below:

Security	Beginning of PeriodValue	End of Period Value	TotalDividend	TotalReturn %
ABC	9,000,000	10,200,000	60,000	14
DEF	21,250,000	12,750,000	127,500	-39.4
GHI	5,000,000	6,000,000	100,000	22
Total	35,250,000	28,950,000	287,500	-17.06

27 John gathers the following data for a value-weighted index::

	Beginning of period		End of period
Security	Price	$ Shares	Price$	Shares
A	10	100	15	100
B	40	150	38	150
B	40	150	38	150

The return on the value-weighted index over the period is closest to: :

It is the percentage change in the market value over the period: Market value at beginning period: (10 * 100) + (40 * 150) + (16 * 200) = 10,200. Market value at end of period: (15 * 100) + (38 * 150) + (20 * 200) = 11,200 Percentage change is (11,200 / 10,200) - 1 = 0.09804 or 9.8 percent with rounding.

28 Alex gathers the following information for an equal-weighted index comprised of assets A, B, and C:

Security	Beginning of period price $	End of period price $	TotalDividends $
A	20	15	2
B	40	48	4
C	60	60	9

What is the price return of the index?

The price return of the index equals the weighted average of price returns of the individual securities.
Return of A: −25 percent = (15 − 20)/20;
Return of B: 20 percent = (48 − 40)/40;
Return of C: 0 percent = (60 − 60)/60.
The price return index assigns equal weights to each asset; therefore, the price return is 1/3 ∗ (−25% + 20% + 0%) = −1.7%.

29 Alex gathers the following information for an equal-weighted index comprised of assets A, B, and C:

Security	Beginning of period price $	End of period price $	TotalDividends $
A	20	15	2
B	40	48	4
C	60	60	9

The total return of the index is closest to:

The total return of an index is the price appreciation, or change in the value of the price return index, plus income (dividends and/or interest) over the period, expressed as a percentage of the beginning value of the price return index.
Return of A: (15 − 20 + 2)/20 = −15%
Return of B: (48 − 40 + 4)/40 = 30%
Return of C: (60 − 60 + 9)/60 = 15%
An equal-weighted index applies equal weight to each security‟s return; therefore, the total return = 1/3 ∗ (−15% + 30% + 15%) = 10%.

30 John gathers the following data for an equally-weighted index:

Security	Price at start ofperiod	Price at end ofperiod $
A	10	15
B	40	38
C	16	20

The return on the index over the period is closest to:

With an equal-weighted index, the index return is the average of the return on the constituent securities. Return on A is 50%, Return on B is -5% and Return on C is 25%. The average is 23.3%.