Suppose Stocks A, B and C are the only three component stocks in a benchmark

index. The number of shares outstanding of Stocks A, B and C are 380,000 shares,
312,000 shares, and 237,000 shares, respectively. The prices of Stocks A, B and C
for Days 1, 2, 3 and 4 are given in the table below:

Stock A Stock B Stock C

Day 1 31.21 85.00 78.32
Day 2 31.92 39.93 76.28
Day 3 33.80 42.90 79.81
Day 4 33.81 43.07 79.24

Stock B had a 2-for-1 stock split on Day 2, which explained the drop in the price of
Stock B.
If the benchmark value-weighted index was 1571.94 on Day 1, the benchmark value-
weighted index on Day 3 was Answer. (Note: Answer must be correct to 2 decimal
places, but you may leave your answer with more than 2 decimal places.)

Solution: Total Market Value on Day 1 =

Stock A = 31.21 * 380000 = 11859800
Stock B = 85 * 312000 = 26520000
Stock C = 78.32 * 237000 = 18561840
Total Market Value on day 1 = 11859800 + 26520000 + 18561840 = 56941640

Number of shares of Stock B on day 2 = 312000*2 = 624000

Total market Value on Day 3 =

Stock A = 33.80 * 380000 = 12844000
Stock B = 42.90 * 624000 = 26769600
Stock C = 79.81 * 237000 = 18914970

Total Market Value on day 3 = 12844000 + 26769600 + 18914970 = 58528570

Benchmark value-weighted index on day 1 = 1571.94

The benchmark value-weighted index on Day 3 = 1571.94 / 56941640 * 58528570
The benchmark value-weighted index on Day 3 = 1615.749

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