Homework SourseAssume the following stocks make up a valueweighted index Co
Corp. Shares Outstanding Market Price
Alpha 50,000 $30
Beta 5,000 10
Gamma 18,000 15
Delta 10,000 40
a. Compute the total market value and the weights assigned to each stock.
Round up to two places to the right of the decimal point. (The weights may
add up to slightly more or less than 100 percent due to rounding.)
b. Assume the shares of Alpha Corporation go up by 20 percent while the
shares of Gamma Corporation go down by 40 percent. The other two
stocks remain constant. What will be the newly established value for the
index?
Solution
Corp. Shares Outstanding Market Price Market value(no. of sharesxMP)
Alpha 50,000 $30 1500000
Beta 5,000 10 50000
Gamma 18,000 15 270000
Delta 10,000 40 400000
a) Total Market value= 1500000+50000+270000+400000= $2220000
Weight of Alpha= 1500000/2220000= .676 or 67.6%
Weight of Beta= 50000/2220000= .023 or 2.3%
Weight of Gamma=270000/2220000=.122 or 12.2%
Weight of Delta= 400000/2220000=.18 or 18%
b)
Alpha Corporation go up by 20 percent= (50000x1.2)= 60000shares
shares of Gamma Corporation go down by 40 percent=(18000x.6)= 10800 shares
Beta= 5000
Delta= 10000
MV of Alpha= 60000X30= 1800000
MV of beta= 50000
MV of Gamma= 10800x15= 162000
Mv of Delta= 400000
New
Weight of Alpha= 1800000/2412000= .7463 or 74.63%
Weight of Beta= 50000/2412000= .0207 or 2.07%
Weight of Gamma=162000/2412000=.0672 or 6.72%
Weight of Delta= 400000/2412000=.1658 or 16.58%
