Answer to Question #295754 in Financial Math for james

Question

Assume you are provided with the following data:

Stock Number of Shares Price of T P rice (T+1)

L auren Corp 1,000.000 60 80

Kayleigh co. 10,000,000 20 35

Madison LTD 30,000,000 18 25

(a) Construct a price-weighted index for these three stocks, and compute the percentage change in the series for the period from T to T +1 (3mks)

(b) Construct a market-value-weighted index for these three stocks, and compute the percentage change in the series for the period from T to T+1 (4mks)

(c) Briefly discuss the difference in the results for the two stock indexes (4mks)

(d) Discuss the three common mistakes that can bias the results against the Efficient Market Hypothesis (3mks)