5. You are given the following information concerning four stocks:
Stock A B C D
Shares outstanding 1,000 300 2,000 400
Price 20X0 50 30 20 60
20X1 50 30 40 60
20X2 50 60 20 60
Using 20X0 as the base year, construct three aggregate measures of the market that simulate the Dow Jones Industrial Average, the S & P 500 stock index, and the Value Line stock index (i.e., a simple average, a value-weighted average, and a geometric average).
a) What is the percentage change in each aggregate market measure form 20X0 to 20X1, and 20X0 to 20X2? Why are the results different even though only one stock's price changed and in each case the price that changed doubled?
b) If you were managing funds and wanted a source to compare your results, which market measure would you prefer to use in 20X2?