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Inv#5 Assignment

This document contains 10 questions regarding stock market indexes and calculations related to index performance. Some key details include: 1) A decrease of just $3.75 in one of the 30 DJIA stocks could account for 39% of a 73 point decline in the index due to the multiplier effect. 2) The S&P 500 rose 19.16% between early 2000 and late March 2000 to reach 1527.46, while the DJIA rose 6.61% over the same period. 3) For the 20th century, a $1 investment in the S&P 500 growing at the compound annual average return of 10.35% would be worth $18,933.62 after 100

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91 views3 pages

Inv#5 Assignment

This document contains 10 questions regarding stock market indexes and calculations related to index performance. Some key details include: 1) A decrease of just $3.75 in one of the 30 DJIA stocks could account for 39% of a 73 point decline in the index due to the multiplier effect. 2) The S&P 500 rose 19.16% between early 2000 and late March 2000 to reach 1527.46, while the DJIA rose 6.61% over the same period. 3) For the 20th century, a $1 investment in the S&P 500 growing at the compound annual average return of 10.35% would be worth $18,933.62 after 100

Uploaded by

Daniyal Ali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Daniyal Ali | 18u00265

Investment Assignment #5
Stock Market Indexes

Q1) What if the DJIA fell 73 points on one day, which most people would consider a notable
decline? With a multiplier of 7.568, a decrease in price of only one of the Dow’s 30 stocks of
$3.75 would produce a change of 28.38 points. Therefore, 28.38/73=39% (rounded) of the
decrease in the DJIA that day was accounted for by the movements in only one of the stocks in
this index. Q1 IS NOT A QUESTON ACCORDING TO MA’AM, only explanation of Textbook
questions.
Q2) On March 18, 2000, the Dow gained approx. 500 points to close at 10,630.6. This was a
percentage gain of 4.94%. In contrast, on October 21,1987, the Dow gained 186.84 points to
close at 2027.85 --- This represented a percentage gain of 10.15% because the base was much
lower. On July 24th,2002, the Dow gained about 489 points to close at 8191.29, a gain of 6.35%.
(All calculations are done using the opening level of the index that day. Q2 IS NOT A QUESTON
ACCORDING TO MA’AM.

Q3) Assume that you construct a price weighted index of 20 stocks. The sum of the prices of
these stocks is $2000. The divisor for this index is 20, and the value of this index is 100. Now
assume that one of the 20 stocks, with an average price of $100, has a two-for-one stock split
while the value of other stocks remains unchanged.
a) If you make no adjustments to the index, what will be the new value of the index?
Sum price/n = 1950/20
b) What does the new divisor have to be to keep the value of the index unchanged at
100
100 = 1950/n = 19.5

Q4) Assume that you have a stock currently priced at $580 that moves exactly proportional to
the S&P 500 Index. Over a six-month period, the index moves from 1325.83 to 1440.67 what
should the price of your stock be?
$580 x (1330.67/1325.83) = $630.24
OR (or is for further reference in exam)
1440.67 / 1325.83 = x%
580 = grow by x
Q5) Assume that DJIA is at 10,000. Some people are predicting that this index could lose 50%
because of economy’s difficulties. If that were to happen, what percentage rate of return
would be necessary to restore the index to its former level?
If the market rate drops 50%, it must double to return to its previous level.

Q6) The 52 weeks’ low for the NASDAQ index occurred on 9/4/09 at 1982.05, while the 52
week high occurred on 4/26/10 at 2535.28. for the DJIA, the dates are the same, and the
comparable numbers are 9302.28 and 11,308.95. Which market performed better during that
time period.
Nasdaq: 535.28/1982.05 = 1.279
DJIA: 11,308.95/9302.28 = 1.2157 (12.57%)
Q7) Assume that the DJIA closed at 13,327 one day recently, and the divisor was .12493117.
a) What is the sum of prices of the 30 stocks in the index, given this information?
Sum of price is 13,327 x (.12493117) = 1,664.96
b) Assume that one stock in the index, Pfizer, moved $4.40 that day, while the index
itself moved about 102 points (to close at 13,327). What percentage of the total
movement in the DJIA that day was accounted for by the movement in Pfizer?
4.49/.12493117 = 35.22 points. Therefore, 35.22/1.02 = 0.345 (34.5%).
c) Now assume that one of the 30 stocks had a 2-for-I stock split that day, declining from
$47.50 to $23.75. What would the new divisor have to be to keep the index
unchanged at 13,327?
(1664.96 – 23.75) 13327 = .12314925

Q8) The DJIA has reached a level of 11,722.98 in January 2000, and the S&P 500 reached a
level of 1527.46 in March 2000. Prior to that, on one particular day, the DJIA was at 10,995.63
and the S&P 500 was at 1281.91.
a) What percentage gain was necessary in each index for it to advance to the two levels
indicated above, given the two lower prices stated?
[11722.98/10995.63]-1.0 = 6.61%]
[1527.46/1281.91]-1.0 = 19.16%
b) If the S&P index declined 7.62 percent over the following year from 1281.91, what
would its new level be?
1281.91 )1-0.763) = 1184.23
Q9) From October 2007 to March 2009 the market declined about 57 percent. It then
advanced in one year about 69 percent. Determine by calculations if investors were ahead
after the advance, or not?
(10,000) * 43 = 4300.
69% increase in index would result in a new level: 4300*1.69 – 7,267. Hence, investors won’t be
ahead.
Q10) For the 20th century, the compound annual average return on the S&P 500 was 10.35%.
How much would $1 have grown over these 100 years?
(1.1035)^100 = 18,933.62. Therefore, $1 would grow to $18,933.62

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