equity

chandniwadhwani92
Finance Junkie
Posts: 166
Joined: Mon Oct 06, 2014 7:36 am

equity

Postby chandniwadhwani92 » Wed Feb 04, 2015 1:32 pm

An equal weight index places a equal weight on the returns of all stock
A $2 change in price of $20 stock has same effect on the index as 430 change in price of $300 stocks regardless of size of company

what does this sentence maens

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

equity

Postby edupristine » Thu Feb 05, 2015 10:21 am

Hi, answer to your question can be explained by taking a numerical example. for example if price of the stock at the end of the period is $20 as you have mentioned in your query and it was $18 in the beginning of the period then there was a $2 change in the price. therefore percentage price change will be $20/$18 (end of the period value/beginning of the period value) which is equal to 1.11% which is exactly same for a change of $30 dollar in a stock of $300 i.e $300/$270= 1.11% ( if stock price increased by $30 to $300). hence, equal weighted index only depends on the change in price irrespective of size of the company. equal weighted index is then calculated depending upon the change in price. in this example we can calculate the change in price by (1.11%+1.11%)/2= 1.11. if initial index value is 120. then equal weighted index value will be 120(1+0.111)= 133.32.


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