Consider this information about 5 stocks from a date in the past …
Price Market cap
GOOG Alphabet C $ 765.70 536.5
AAPL Apple $ 113.58 612.0
TGT Target $ 68.89 39.6
P G Proctor Gamble $ 88.37 235.9
CVX Chevron $ 98.04 185.0
a) Calculate the weights of each stock in a price-weighted portfolio, a market value-weighted portfolio, and an equal-weighted portfolio. Round each to 3 decimals: xx.yyy% or .xxyyy
b) Compare the weights … which stock(s) is/are the most different across the 3 portfolios (indexes)?
c) Calculate a price-weighted index including all 5 of these stocks.
d) How much will each portfolio – or index constructed using these securities – move if GOOG rises by 2.5%?
e) Suppose Apple does a 3:1 stock split. What changes have to be made – if any – to the price-weighted and market-value weighted indexes?
f) After e) happens [ignore d) ], suppose now a change to the portfolio is made, and Chevron is replaced by Exxon/Mobil, whose price on this day is $83.83 with 4.15 billion shares outstanding. Determine the adjustments that need to be made to the price-weighted and market value-weighted index calculations to maintain their interpretability through time and to preserve their objective as measures of average performance.