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

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

5. 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.

6. NameNumberPrice 1Value 1Price 2Value 2Price 3Value 3 ABC1000$2.562560$2.812810$2.912910 CBA2000$1.292580$1.122240$1.292580 CAB1000$1.031030$1.231230$1.111110 DEF3000$3.239690$3.5510650$3.5710710 AMV115860AMV216930AMV317310

7. 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.

9. Find the percentage change in the XAO from 1999 to 2000. 3246.1-3020.3 x 100 3020.3 = 7.48% Old Value New Value

10. 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.

11. 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.

12. 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 2012. Taking into account taxation and inflation calculate if Doreen has made a profit if her tax rate is 42%.

13. Step 1- Calculate the real gain in the shares. 6577 - 3450 = 3127 Discount rule applies – 3127/2 = 1563.50 Tax Payable = 1563.50 x 0.42 = 656.70 Net Gain = 3127 – 656.70 = 2470.33 Percentage Gain (Net Gain / Purchase Price) x 100 (2470.33/3450) x 100 = 71.6% increase

14. 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.