calculation of index point
KSE-100 INDEX CALCULATION METHODOLOGY
In the simplest form, the KSE100 index is a basket of price and the number of shares outstanding. The value of the basket is regularly compared to a starting point or a base period. In our case, the base period is 1st November, 1991. To make the computation simple, the total market value of the base period has been adjusted to 1000 points. Thus, the total market value of the base period has been assigned a value of 1000 points.
An example of how the KSE 100 Index is calculated can be demonstrated by using a three-stock sample. Table 1 illustrates the process. First, a starting point is selected and the initial value of the three-stock index set equal to 1000.
Taking stock A’s share price of Rs. 20 and multiplying it by its total common shares outstanding of 50 million in the base period provides a market value of one billion Rupees. This calculation is repeated for stocks B and C with the resulting market values of three and six billion Rupees, respectively.
The three market values are added up, or aggregated, and set equal to 1000 to form the base period value. All future market values will be compared to base period market value in indexed form.
CALCULATING THE KSE-100
Step 1 The Base Period Day 1 TABLE 1 stock Share Price (in Pak Rs.) Number of Shares Market Value (in Rs.) A 20.00 50,000,000 1,000,000,000.00 B 30.00 100,000,000 3,000,000,000.00 C 150,000,000 6,000,000,000.00 Total Market Capitalization 10,000,000,000.00 ———————— Note: Base Period Value/Base Divisor = Rs. 10,000,000,000.00 = 1000.00 * All figures taken are only hypothetical. KSE-100 INDEX Step 1 The Base Period Day 1 TABLE 1 stock Share Price (in Pak Rs.) Number of Shares Market Value (in Rs.) A 20.00 50,000,000 1,000,000,000.00 B 30.00 100,000,000 3,000,000,000.00 C 150,000,000 6,000,000,000.00 Total Market Capitalization 10,000,000,000.00 11,000,000,000.00 Index = = 1.10 * 1000 = 1100 10,000,000,000.00 Thus, the formula for calculating the KSE-100 Index is: Sum of Shares Outstanding x Current Price —————————————————————— x 1000 Base Period Value Or Market Capitalization ————————————— x 1000
Base Divisor The KSE100 Index calculation at any time involves the same multiplication of share price and shares outstanding for each of the KSE100 Index component stocks. The aggregate market value is divided by the base value and multiplied by 1000 to arrive at the current index number.