Share Investments 2 Share Investments 2 Subtopic 7.2 –Index Numbers Topic 2 1 Test 1 Project.

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Presentation transcript:

Share Investments 2 Share Investments 2 Subtopic 7.2 –Index Numbers Topic 2 1 Test 1 Project

Index Numbers How to get a “feel” for the market

Index numbers are used to calculate relative change in variables over a period of time. That is they measure the change in a value from one period to the next. A variety of data is summarised into a single index figure, making comparisons easier. Inflation (CPI) and the All Ordinaries Index are two index numbers we will look at.

NameNumberPrice 1Value 1Price 2Value 2Price 3Value 3 ABC1000$ $ $ CBA2000$ $ $ CAB1000$ $ $ DEF3000$ $ $ AMV115860AMV216930AMV317310

Percentage Increases / Decreases The following formula can be used a lot for index calculations: New Value – Old Value x 100 Old Value This allows us to compare rises or falls using percentages.

Find the percentage change in the XAO from 1999 to x = 7.48% Old Value New Value

The obvious way to do a task that uses a lot of index numbers is to make up a spreadsheet – this can be used in investigations.

Performance of Shares Once you have calculated the inflation rate – using the CPI you can compare this to your share investments to see if you have actually made a real profit. If the price of your shares have risen over time value and inflation has also risen – the rise in value of your shares must be higher than the rise in inflation for you to have made a real profit. Taxation needs to be taken into account as well.

Doreen bought some ATL shares in 2003 for $3450 and then sold them in 2006 for $6577. The CPI in 2003 was 1281 and in 2006 was Taking into account taxation and inflation calculate if Doreen has made a profit if her tax rate is 42%.

Step 1- Calculate the real gain in the shares = 3127 Discount rule applies – 3127/2 = Tax Payable = x 0.42 = Net Gain = 3127 – = Percentage Gain (Net Gain / Purchase Price) x 100 ( /3450) x 100 = 71.6% increase

Step 2- Calculate the % increase in CPI New Value – Old Value x 100 Old Value 2022 – 1161 x 100 = 74.2% 1161 The shares rose by 71.6% and inflation by 74.2% so our investment did not keep up with inflation – so we actually made a loss.