Question: Assume the following five companies are used in computing an index: a. If the index is price weighted, what will be the value of the

Assume the following five companies are used in computing an index:

a. If the index is price weighted, what will be the value of the index on December 31, 2007? (Take the average price on December 31, 2007, and divide by the average price on January 1, 1984, and multiply by 100.)
b. If the index is value weighted, what will be the value of the index on December 31, 2007? (Take the total market value on December 31, 2007, and divide by the total market value on January 1, 1984, and multiply by 100.)
c. Explain why the answer in part b is different from the answer in part a.

Base Period January Current 1. 1984 Market December 31, 2007 Period Company Shares Outstanding Price 6.000 2,000 10,000 1,000 4,000 Market Price S12 18 40 10 32 S6 20 15

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