Please construct a price-weighted index and a market capitalization-weighted index based on the following information. Assume the number of shares issued by each company remains unchanged between times 1, 2 and 3
Stock P1 P2 P3 Number of shares outstanding
A $20 $25 $22 50,000
B $100 $102 $105 10,000
C $50 $51 $ 50 20,000
a. Calculate the values of both the price-weighted index and of the market capitalization-weighted index at times 1, 2 and 3. What is the rate of growth (return) of both indexes between each period? Assume that time 1 is your base period, i.e. when each index is first constructed.
b. Assume now that company B splits its stock price in two at the end of time 2. Calculate the new divisor used for the price-weighted index.