Equity Investments - Equity Investments Section 1
| 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:
- Option :
- Explanation : 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: :
- Option : B
- Explanation : 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.
| 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?
- Option : B
- Explanation : 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%.
| 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:
- Option : C
- Explanation : 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:
- Option : C
- Explanation : 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%.
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