Question

Deepa Chungi wishes to develop an average or index that can be used to measure the general behavior of stock prices over time. She has decided to include 6 closely followed, high-quality stocks in the average or index. She plans to use August 15, 1984, her birthday, as the base and is interested in measuring the value of the average or index on August 15, 2010, and August 15, 2013. She has found the closing prices for each of the 6 stocks, A through F, at each of the 3 dates and has calculated a divisor that can be used to adjust for any stock splits, company changes, and so on that have occurred since the base year, which has a divisor equal to 1.00.
a. Using the data given in the table, calculate the market average, using the same methodology used to calculate the Dow averages, at each of the dates—August 15, 1984, 2010, and 2013.
b. Using the data given in the table and assuming a base index value of 10 on August 15, 1984, calculate the market index, using the same methodology used to calculate the S&P indexes, at each of the dates.
c. Use your findings in parts a and b to describe the general market condition—bull or bear—that existed between August 15, 2010, and August 15, 2013.
d. Calculate the percentage changes in the average and index values between August 15, 2010, and August 15, 2013. Why do they differ?


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  • CreatedApril 28, 2015
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