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A Fin24 user wants to know about the Nairobi stock exchange. He writes:
Please demonstrate how the stock index of the Nairobi stock exchange is calculated.
Simon Brown, a financial educator at JustOneLap, responds:
An index is a measure of how a basket of shares is performing.
The basket will be designed along a certain methodology such as the largest stocks on the market, and each stock will have its influence in the index related to the size of the company.
So let's say we have five stocks with a respective value of A being R1k, B and C being R2k each, D - R5k and E - R10k. The total market value of the five is R20k and the largest share (E) worth R10k will make up half the index.
If we start the index with a value of 100 points and the weighting in the index is as follows (based on company value), then: A (5%), B (10%), C (10%), D (25%), E (50%).
Now if the share price of stocks A, B, C and D do not move for a day, but E increases by 10%, the index would move from 100 - 105 (a 5% gain).
This is because the 50 points company E represents has increased 10%, adding 5 points to the index.
This calculation is done for each company and the result is the index (average weighted) move.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Please demonstrate how the stock index of the Nairobi stock exchange is calculated.
Simon Brown, a financial educator at JustOneLap, responds:
An index is a measure of how a basket of shares is performing.
The basket will be designed along a certain methodology such as the largest stocks on the market, and each stock will have its influence in the index related to the size of the company.
So let's say we have five stocks with a respective value of A being R1k, B and C being R2k each, D - R5k and E - R10k. The total market value of the five is R20k and the largest share (E) worth R10k will make up half the index.
If we start the index with a value of 100 points and the weighting in the index is as follows (based on company value), then: A (5%), B (10%), C (10%), D (25%), E (50%).
Now if the share price of stocks A, B, C and D do not move for a day, but E increases by 10%, the index would move from 100 - 105 (a 5% gain).
This is because the 50 points company E represents has increased 10%, adding 5 points to the index.
This calculation is done for each company and the result is the index (average weighted) move.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
