Computing Indexes

CFA Level 1 - Securities Markets

The methods of calculating the various weighting schemes is best explained by example:

Example: Price Weighted Series

Given the following series data, calculate the price weighted return over a one-year period.

Stock Price Info for Series 1



Answer:

To calculate the return over a one-year period, first calculate the price weighted series value at each date.

Price weighted index_12/31/2003 = (15 + 25 + 40 + 80)/4 = 40 

Price weighted index_12/31/2004 = (10 + 30 + 40 + 100)/4 =45     

                                                          
The one-year return for the price weighted series would thus be (45/40)-1 = 12.5%

Example: Market Weighted Series

Given the following series data, calculate the market weighted return over the one-year period.

Stock Price Info for Series 2

Answer:

Market weighted return = (390,000/355,000)* 100= 109.59                               

The 1-year return for the market weighted series would thus be (109.59/100)-1 = 9.90%.

Example: Unweighted Series

Given the following series data, calculate the unweighted return over a one-year period.

 Stock Price Info for Series 3

Answer:

Geometric Average = (1.05 * 1.25 * 1.00 * 1.30)^1/4 = 1.143

| | Print This! | No comments

Do you like this post?