Caution: Indexes Under Construction
Suppose there are only two stocks in the market and the following information is given:
|
Price per Share |
|||
|
Shares Outstanding |
Beginning of Year |
End of Year |
|
|
Betty Co. |
10 million |
$10 |
$11 |
|
Gray Bull, Inc. |
20 million |
$20 |
$25 |
Construct price and value weighted indexes and calculate the percentage changes in each. The average share price rose from $15 to $18, or $3, so the price weighted index would be up by 3/15 = 20 percent. Average total market value, in millions, rose from $250 to $305, so the value weighted index rose by 55/250 = 22 percent.