Question

Financial Management

The Suban-6 index is a fictitious index and is used by many investors to monitor the general behaviour of the stock market. Its value was set equal to 100 on 1 January 1975 (based on the stock prices below). In the table below we have the value of the stocks composing this index for1 January 2014 and 30 June 2014.

)Calculate the value of the index for 1 January and 30 June 2014.

b) Compare the value the value of the index on those two dates with the original base of 1January 1975. (50 words)

c) Given the evolution of the index between 1 January 2014 and 30 June 2014, would you qualify that market as a bull or bear market ? What is the return for six months and what would be that return on an annualised basis.

d) Can you list a real stock index which is calculated using the same method as above? How do we call such indexes? What are the disadvantages of using such a method? Can you name an alternative method which is better? (75 words)


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