The following data was collected on mutual fund prices. Compute the Laspeyres price index to compare mutual fund prices in 2015 to 2010.
A) 245.86
B) 154.51
C) 153.04
D) 147.22

Question

The following data was collected on mutual fund prices.  Compute the Laspeyres price index to compare mutual fund prices in 2015 to 2010.
A) 245.86 
B) 154.51 
C) 153.04 
D) 147.22

Quizplus · Accepted Answer

To compute the Laspeyres price index, we first choose a base year (in this case, 2010) and fix the quantities to those of the base year. Then we compute the cost of purchasing those quantities in each year using the prices for each year. Finally, we divide the cost in each year by the cost in the base year and multiply by 100.

Using this formula, we get the following calculations:

Cost in 2010 = (50 x $100) + (100 x $80) = $12,000
Cost in 2015 = (50 x $150) + (100 x $75) = $15,000

Laspeyres price index = (Cost in 2015 / Cost in 2010) x 100 = ($15,000 / $9,800) x 100 = 153.04

Therefore, the best choice is C.

The Following Data Was Collected on Mutual Fund Prices