Equity Mock Goldsboro case

CFA Level III Equities
#1

CFA MOCK 2015 afternoon Q 25:

Q asks for calculation of Price- weighted, value weighted and equal weighted indexes. I thought we do not know how to calculate them- am I wrong?

#2

pretty easy question, hope they ask this on the real exam.

#3

check the very first example (grey box) which if memory serves me right is actually stretched out to about 6 pages and 4 grey boxes…

#4

so we Do have to know how to calculate it. Thanks, I will review.

#5

This may be a dumb question, but I don’t understand how they just took the Ending aggregate Market value and divded by beginning aggregate market value to get the value weighted return? And then they just took ending aggregate price divided by beginning aggregate price to get the price weighted return. I assume we can just take the average of all % price changes to get equal weighted return?

I was calculating the weight of each stock in the portfolio and then multiplying them out… it took way too long.

I’m sure you can work it out mathematically but is there an intuitive way to explain this?

#6

I don’t think they did that. From memory they take the weights (value or price) and multiply by the % increase.

Yes, this is correct. It is the same as investing £100 in each security.

#7

Thanks Pokhim, here is the answer directly from the PDF, question #25:

This weighting methodology produced the largest return of 13.5% for the GSI. The return on a value-weighted index is the percentage change in the total market capitalization of the firms in the index, or

13.5% = (178.2/157)-1

http://www.cfainstitute.org/programs/cfaprogram/candidate/Documents/level_III_mock_exam_afternoon_answers_2015.pdf

#8

I think the CFAI got this wrong. The change in total market caps from 1/1/2009 to 1/1/2010 are not factoring in new stock issuance or share repurchases. Furthermore, the question says there is “no rebalancing” so I think it is correct to weight the “change in price” column based on starting market cap (i.e. the “Mkt Cap 1/1/2009” column), which yields a result of 11.9974% and is less than the 12.4% generated on an equal weight basis. The correct answer should be B (not A).

Would love for Magician and others to confirm…

Thanks!

#9

bump, anyone have any thoughts on this?

#10

I am still confused about this. Can anybody clear this for me?

Thanks,

#11

If the number of shares of each stock does not change, total market cap will be 175.80, hence, value weighted return is 11.975%. However, I believe total market cap increases to 178.2 because there has been new stock issuance and/or re-purchase, therefore, the correct answer is A.