A price-weighted index consists of stocks A, B, and C which are priced at $32, $64,...
A price-weighted index consists of stocks A, B, and C which are priced at $32, $64, and $41 a share, respectively. The current index divisor is 2.45. If stock B undergoes a 2-for-1 stock split, the new index divisor will be:
Homework Answers
The new index divisor is computed as shown below:
= [ Price of stock A + Price of stock B / 2 + Price of stock C ] / [ (Price of stock A + Price of stock B + Price of stock C) / index divisor ]
= [ $ 32 + $ 64 / 2 + $ 41 ] / [ ( $ 32 + $ 64 + $ 41 ) / 2.45 ]
= $ 105 / $ 55.91836735
= 1.88 Approximately
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