Problem
The stock market is consisted of three stocks: Small, Medium, and Large. Small has 10 shares outstanding. Medium has 100 shares outstanding. And Large has 1000 shares outstanding. At time O, the prices for the stocks are as follows: $100/share for Small; $50/share for Medium; and $100/share for Large. At time 1, the prices have changed to the following: $200/share for Small; $60/share for Medium; and $90 for Large.
1) What would happen to the price weighted index for this market (up or down)?
2) What would happen to the value weighted index (up or down)?
3) Which is a better index to reflect the stock market conditions and why?