How can I Convert the stock market indices into dollar terms?
Joel asked:
My Economics teacher asked me to convert the stock market returns of some countries into dollar terms. I don’t know how I can do this… Can someone explain?
My Economics teacher asked me to convert the stock market returns of some countries into dollar terms. I don’t know how I can do this… Can someone explain?
To convert stock market indices into dollars, you need to find out the number of shares on each index. This is going to be the tough part of your search. However, the formula is easy, as I have it below.
Index level= Σ(Price of stock* Number of shares)*Free float factor/ Index Divisor.
The *Free float Adjustment factor represents the proportion of shares that is freefloated as a percentage of issued shares and then its rounded up to the nearest mulitple of 5% for calculation purposes. To find the free-float capitalization of a company, first find its market cap (number of outstanding shares x share price) then multiply its free-float factor. The free-float method, therefore, does not include restricted stocks, such as those held by company insiders.
While one might track this portfolio’s value in dollar terms, it would probably be an unwieldy number – for example, the S&P 500 market value is roughly $10.3 trillion. Rather than deal with ten or more digits, the figure is scaled to a more easily handled number, currently at 1093 as of 11/13/09. Dividing the portfolio market value by a factor, usually called the Index divisor, does the scaling.
I hope you get an “A” for your grade.