Hi all -
struggling to figure out why the answer is B, value weighted (13.5%) when my calculation for an equal weighted return is 13.72% - sum of market cap appreciation =68.6%/5= 13.72%. What am I doing wrong here? Question asks for which methodology produces the highest return
thanks for your help!
I think you are just doing the math wrong, apply 20% to each of the returns, its like 12.4%
Value-weighted method
Return = 178.2 / 157 - 1 = 13.5%
Equal-weighted method
Return = (7.70% + 17.9% + 14.3% + 11.6% + 10.5%) / 5 = 12.4%
Price-weighted method
Proportion invested in Singtel = 2.35 / 56.41 = 0.0417
Proportion invested in Wilmar = 5.77 / 56.41 = 0.1023
Proportion invested in DBS = 11.62 / 56.41 = 0.206
Proportion invested in Jardine = 23.94 / 56.41 = 0.4244
Proportion invested in UOB = 12.73 / 56.41 = 0.2257
Return = (0.0417)(7.7%)+(0.1023)(17.9%)+(0.206)(14.3%)+(0.4244)(11.6%)+(0.2257)(10.5%) = 12.39%
Thanks for the responses. Looks like I messed up using change in market cap as the return component for equal weighted instead of change in price. I still am slightly confused here. In each case the return component for each stock should be the same correct? It’s just the weightings which are different. Shouldn’t the value weighted index also use the change in price as the return component and weight them appropriately using market capitalization? Change in market cap would capture things you wouldn’t want to capture like share buybacks and new issuances… am I overthinking things?