Assume there are two stocks in an index: Stock A B Price 100 100 What would the change in the index value be for: A value weighted index 10% For a price weighted index 10% Market Cap $500 million $2 billion Price Change 10% 20%

Assume there are two stocks in an index: Stock A B Price 100 100 What would the change in the index value be for: A value weighted index 10% For a price weighted index 10% Market Cap $500 million $2 billion Price Change 10% 20%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 10P

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Concept explainers

Stock Yields

The stock yield is otherwise known as the dividend yield. The dividend yield is an annual payment of the stock dividends to the holder of a firm’s stock. The dividend yield is a financial ratio to measure the value of dividend payout every year for the relative stock price. The yield of a stock is usually shown in a percentage that discloses the expected future earnings from stock depending on the current stock price in the future. Stock yield will change depending on the market fluctuations and in accordance with the market fluctuations, the dividends will be increased or decreased by the firm.

Question

Assume there are two stocks in an index:
Stock
A
B
Price
100
100
What would the change in the index value be for:
A value weighted index 10%
For a price weighted index 10%
Market Cap
$500
million
$2 billion
Price
Change
10%
20%

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Step 3: Calculation of the change in the index value for a price-weighted index:

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