Question

The ABC stock index is based on the listed price of stock in three companies, A, B and C. The index is market weighted and corrected for dividends and stock splits. On Day 1, the index is at 2000 points when markets close. Then the price of each share in A is 3,24, in B 0,75 and in C 6,7. There have been issued (and sold to investors) 100 million shares in A, 250 million in B and 100 million in C.

The day after, the following happens: Firm B goes through with a 1-for-3 reverse stock split. Firm A pays a dividend of 0,10 per share.

At the end of the day, shares in A are trading at 3,20, in B at 2,15 and in C at 6,1. What is the level of the index then?

Answer 1

2 Note As Index is market weighted so weights will be calculated using each shares market cap Stock Weightmarket cap/ total Cap1 *100 DAY Market Cap Stock Weight 24000000 27.42276767 187500000 670000000 Market Cap Day2 Price 3.2 2.15 6.1 Shares 100000000 83333333.33 Stocks Price Shares 3.24 0.75250000000 6.7 100000000 179166666.7 610000000 1109166667 15.86965722 56.70757512 100000000 SUM SUM 10 12 13 Formula 110- E10 [110-E101/110 * 100-6122161095 72333333.33 Change In Market Capitalization Change in Market Capitalization % Given F15 * H14 % Beginning IndexDayl End Of day 2 Index Day After 15 16 17 18 Note 19 Note 20 1877.556778 Reverse Stock Split means Shares are merged, so less number of shares are available for Stock B For Stock A as it pays dividends its not going to effect the market cap of Stock A