Assume the Following Five Companies Are Used in Computing an Index

question 29

Essay

Assume the following five companies are used in computing an index (there have been no stock splits during this time). $\begin{array}{lrrr}&&\text { Base Period }&\text { Current Period }\\&\text { Shares} &\text { January 1, 1977 }&\text { December 31, 2004}\\\underline{\text {Company}}&\underline{\text { Outstanding }} & \underline{\text { Market Price }} & \underline{\text { Market Price }}\\\text { A } & 2,000 & \$ 2.00 & \$ 14.00 \\\text { B } & 6,000 & 6.00 & 18.00 \\\text { C } & 5,000 & 9.00 & 23.00 \\\text { D } & 8,000 & 10.00 & 5.00 \\\text { E } & 1,000 & 13.00 & 40.00\end{array}$ (a) If the index is price-weighted, what will be the value of the index on Dec. 31, 2004?
(b) Using the same data from the above table, determine the index value if the index is calculated on a value-weighted basis.

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Definitions:

AMT Purposes

Refers to the specific calculations and adjustments applied to determine the Alternative Minimum Tax owed by an individual or corporation.

Standard Deduction

A fixed dollar amount that reduces the income on which you are taxed, varying by filing status, and used instead of itemizing deductions.

Positive Adjustment

An increase in the amount of reported income or expense, resulting in a higher taxable income.

AMTI

Alternative Minimum Taxable Income, which is calculated to ensure that taxpayers with large amounts of deductions, exemptions, and exclusions still pay a minimum amount of tax.