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Price-Weighted Divisor for the price-weighted index

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There is a stock index that holds only three stocks known as A, B and C. In sequential order they sell for $50.00, $100.00 and $150.00.

a) If B undertakes a 2 for 1 stock split, what is the new divisor for the price-weighted index?

b) If B undertakes a 3 for 1 stock split, what is the new divisor for the price-weighted index?

Please show all calculations in-depth needed to acquire the answers to these problems.

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Solution Summary

Solution describes the steps to calculate Price-Weighted Divisor for the price-weighted index.

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See the attached file.
a) If B undertakes a 2 for 1 stock split, what is the new divisor for the price-weighted index?

The new divisor is calculated (using prices adjusted for the split) such that the average after split is unchanged from average before split.
Average price before ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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