2011 Mock Question 19 average, neither, difference, 2011

brain_wash_your

How come in the answer they use the ending market period to calculate return?

To me, the correct method is to do a weighted average of the stock price changes using the Market Cap at 1/1/09 as weight.

The problem says no stock splits or dividends, so the only reason for a difference between the price change and the market cap change is an acquisition or a spinoff, neither of which would cause a value weighted index to apprecaite.

I got equally weighted as very narrowly beating out price weighted.

thanks for any help in advance.

Darien

gregorynep Wrote:
-------------------------------------------------------
> How come in the answer they use the ending market
> period to calculate return?
>
> To me, the correct method is to do a weighted
> average of the stock price changes using the
> Market Cap at 1/1/09 as weight.
>
> The problem says no stock splits or dividends, so
> the only reason for a difference between the price
> change and the market cap change is an acquisition
> or a spinoff, neither of which would cause a value
> weighted index to apprecaite.
>
> I got equally weighted as very narrowly beating
> out price weighted.
>
> thanks for any help in advance.

This example is directly out of the book...the book would be better than anyone else telling you how to do it.

ll11

Where is the example in the book? Do you mean Reading 32, page 208? the example here has market value changing by the price change.

lcw77

Logically, something is wrong in both the book example and the mock exam.

If there are no changes in shares outstanding, mathematically the price change and market value change would be the same - but it's not!

I'm gonna go with their 'total market cap' approach from the book if this comes up on the exam!

zwjy

At risk of being shot for not consulting the book first -- I was reviewing this today, and i see how they determined that market cap > price weighted, but how did they calculate equal weighted rate of return?

lcai

darkstar Wrote:
-------------------------------------------------------
> Logically, something is wrong in both the book
> example and the mock exam.
>
> If there are no changes in shares outstanding,
> mathematically the price change and market value
> change would be the same - but it's not!
>
> I'm gonna go with their 'total market cap'
> approach from the book if this comes up on the
> exam!

I think it is more just to show the example than anything else.

mar350

Equally weighted : 13.72%, why value-weighted (13.5%) will result in the largest return ?
And price-weighted = 63.9/56.41 - 1 = 12.37% ?

mp3bu

markCFAIL Wrote:
-------------------------------------------------------
> At risk of being shot for not consulting the book
> first -- I was reviewing this today, and i see how
> they determined that market cap > price weighted,
> but how did they calculate equal weighted rate of
> return?

Sum up the returns, divide by 5.

susana

For the price column? would that not be price weighted?

oneboy

I got 13.72 aswell but for equal you equally weight the price weighted returns not the market cap ones