## Related questions with answers

Boran Stockbrokers, Inc., selects four stocks for the purpose of developing its own index of stock market behavior. Prices per share for a Year $1$ base period, January of Year $3,$ and March of Year $3$ follow. Base-year quantities are set on the basis of historical volumes for the four stocks.

$\begin{array}{clcccc} & & {\text{ Price per Share (\$) }} \\ \text { Stock } & \text { Industry } & \text { Year 1 } & \text { Base } & \text { January } & \text { March } \\ \text { Quantity } & \text { Year 1 } & \text { Year 3 } & \text { Year 3 } \\ \text { A } & \text { Oil } & 100 & 31.50 & 22.75 & 22.50 \\ \text { B } & \text { Computer } & 150 & 65.00 & 49.00 & 47.50 \\ \text { C } & \text { Steel } & 75 & 40.00 & 32.00 & 29.50 \\ \text { D } & \text { Real estate } & 50 & 18.00 & 6.50 & 3.75 \end{array}$

Use the Year $1$ base period to compute the Boran index for January of Year $3$ and March of Year $3.$ Comment on what the index tells you about what is happening in the stock market.

Solution

VerifiedThe formula for weighted price index at period $t$ is:

$I_t=\dfrac{\sum Q_{i0}P_{it}}{\sum Q_{i0}P_{i0}}\cdot 100$

Where $Q_{i}, P_{i0}$ and $P_{it}$ are in order: the quantity, the base price and the price at period $t$ for items $i=A, B, C, D$.

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