Paper 4: Fundamentals of Business Mathematics & Statistic

7.20 I FUNDAMENTALS OF BUSINESS MATHEMATICS AND STATISTICS

Index Numbers

7.10. STEPS IN CONSTRUCTION OF CHAIN INDEX

(1) The figures are to be expressed as the percentage of the preceding year to get link

relatives.

Link Relatives of current year =

priceofcurrentyear 100

priceofpreviousyear×

(2) Chain index is obtained by the formula :

Chain Index = Current year link relative Previous year link r 100 × elative

Example 8: From the following data find the index numbers by taking (1) 2005 as base (ii) by chain base method.

Year 2005 2006 2007 2008 2009 2010 2011 2012

Prices 60 62 65 72 75 80 82 85

Solution

Table : Construction of Index Number taking 2005 as base

Year Price Index No. (2005 = 100)

2005 60 100

2006 62 6260 x 100 = 103.33

2007 65 6560 x 100 = 108.33

2008 72 7260 x 100 = 120

2009 75 7560 x 100 = 125

2010 80 8060 x 100 = 133

2011 82 8260 x 100 = 136.66

2012 85 6085 x 100 = 141.66

This means that from 2005 to 2006 there is an increase of 3.33% (103.33 - 100) from 2005 to 2007 there is an

increase of 8.33% (108.33 - 100) increase from 2005 to 2008 there is an increase of 20% (120 - 100) & so

on..........