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# HW02 - Bus261 Homework Assignment#2 2 Assume the following...

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Bus261 Homework Assignment #2 2. Assume the following stocks make up a value-weighted index: a . Compute the total market value and the weights assigned to each stock. Corporation Shares Price Total Market Value Weighting Maris 6,000 \$30 6,000 * \$30 = \$180,000 (180000/882000)*100% = 20% Mantle 14,000 \$5 14,000 * \$5 = \$70,000 (14000/882000)*100% = 8% Howard 4,000 \$8 4,000 * \$8 = \$32,000 (32000/882000)*100% = 4% Richardson 30,000 \$20 30,000 * \$20 = \$600,000 (600000/882000)*100% = 68% \$882,000 100% b . Assume the price of the shares of the Howard Corporation go up by 50%, while those of the Richardson Corporation go down by a mere 10%. The other two stocks remain constant. What will be the newly established value for the index? Howard: \$8*1.5 = \$12, increases to \$12 Richardson: \$20*0.10 = \$2, decreases by \$2 to \$18 New value: \$180,000 + \$70,000 + (4,000 * \$12) + (30,000 * \$18) = \$838,000 c . Explain why the index followed the pattern it did in part b .

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HW02 - Bus261 Homework Assignment#2 2 Assume the following...

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