According to the explanation of the attached picture in my textbook is that" price-weighted index (e.g., Dow Jones) is computed by summing the prices of the individual stocks, then dividing by a divisor to determine the base index value.The divisor, such as 100, relates the starting value and is adjusted as stocks split or composition of the index is changed"please illustrate the calculation of stock market indexs and market value-weighted index correlatively with the table in picture and the explanation below the table to make me understand why divisor is 100, what's the core concept in calculating both price-weighted index and market value-weighted index in the table Stock Market Indexes• Assume that there are 3 stocks in the market.• Share outstanding and prices are as follows.Stock AStock BStock COutstandingShares200 shares300 shares100 sharesTotal Stock PricesIndex (Price Wt)Total Market CapitalizationIndex (Market Cap Wt)Stock Market IndexesDay 0Price111612Day 1Price1217113940100.00 102.5682008600100.00104.88Day2Price12141440102.56800097.56Day3Price11151440102.56810098.78• Each stock is assigned a relative weight in the portfolio.• A price-weighted index (e.g., Dow Jones) is computed bysumming the prices of the individual stocks, then dividing by adivisor to determine the base index value.• The divisor, such as 100, relates the starting value and isadjusted as stocks split or composition of the index is changed.• A market value-weighted index (e.g., S&P 500) is calculated bysumming the total market value of the firms in the index. Thepercentage change in the total market value of the firms is thereturn on the index.

A price weighted index of a market is the stock marlet index in which each company in the stock…

Answered: •Assume that there are 3 stocks in the…

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

8th Edition

ISBN:9781285065137

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 4DQ: Select one of the four stocks listed in Question 3 by entering the companys ticker symbol on the...

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According to the explanation of the attached picture in my textbook is that

" price-weighted index (e.g., Dow Jones) is computed by
summing the prices of the individual stocks, then dividing by a
divisor to determine the base index value.

The divisor, such as 100, relates the starting value and is
adjusted as stocks split or composition of the index is changed"

please illustrate the calculation of stock market indexs and market value-weighted index correlatively with the table in picture and the explanation below the table to make me understand why divisor is 100, what's the core concept in calculating both price-weighted index and market value-weighted index in the table

Stock Market Indexes
• Assume that there are 3 stocks in the market.
• Share outstanding and prices are as follows.
Stock A
Stock B
Stock C
Outstanding
Shares
200 shares
300 shares
100 shares
Total Stock Prices
Index (Price Wt)
Total Market Capitalization
Index (Market Cap Wt)
Stock Market Indexes
Day 0
Price
11
16
12
Day 1
Price
12
17
11
39
40
100.00 102.56
8200
8600
100.00
104.88
Day2
Price
12
14
14
40
102.56
8000
97.56
Day3
Price
11
15
14
40
102.56
8100
98.78
• Each stock is assigned a relative weight in the portfolio.
• A price-weighted index (e.g., Dow Jones) is computed by
summing the prices of the individual stocks, then dividing by a
divisor to determine the base index value.
• The divisor, such as 100, relates the starting value and is
adjusted as stocks split or composition of the index is changed.
• A market value-weighted index (e.g., S&P 500) is calculated by
summing the total market value of the firms in the index. The
percentage change in the total market value of the firms is the
return on the index.

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