Equal-weighted Index: CFA Mock #19

[thepinkman]

From the CFAI mock question #19 to find the equal-weighted return do you apply an equal weight to the change in price or to the change in market cap?

 

[pimpineasy]

excellent question
apply an equal weight of say one to each …….apply price change percent
and calculate the retrun
i get 12.4% return

 

[stevenevans]

I remember this question quite well, and haven’t yet been able to figure out the answer
The equally weighted return should have been the highest (in my analysis) cause its based on a dollar invested in each stock, so Singtel gives 1.077%, Wilmar gives 1.179%, etc and then you got to average that out
But clearly there seems to be some mistake in my logic but the CFA answers don’t seem to help on this
Can someone else please explain where I’m going wrong?

 

[stevenevans]

Apologies - I’ve got the answer, wasn’t dividing by the right number! My mistake

 

[darkstar]

I haven’t taken the mock exam and thus haven’t seen this question, but I’d say apply an equal weight to the change in price. In most cases, the change in price and change in market cap will be the same but some corporate events might affect the market cap in different ways than the price.

 

[AMA]

How to calculate price-weighted return ? Using beginning prices or ending prices for weighting ?

 

[stevenevans]

Yes, average all beginning prices, and ending prices, then divide average ending prices by average beginning prices – simple no? The market and eqully weighted method need more work though

 

[AMA]

stevenevans Wrote:
——————————————————-
> Yes, average all beginning prices, and ending
> prices, then divide average ending prices by
> average beginning prices – simple no? The market
> and eqully weighted method need more work though
(63.39/5) / (56.41/5) - 1 = (63.39/56.41) - 1= 12.37% ? so easy ?

 

[stevenevans]

yep