Final answer:
The divisor in the Dow Jones Industrial Average decreases when a stock split occurs, as the share price is halved and the divisor must be adjusted to maintain a consistent index value.
Step-by-step explanation:
When a stock split occurs, the divisor in the Dow Jones Industrial Average (DJIA) or any similar index decreases. This is because a stock split increases the number of shares outstanding while the stock's total market capitalization remains the same. As a result, the price of individual shares decreases. The DJIA is a price-weighted index, meaning that higher-priced stocks have a more significant impact on the index's value than lower-priced stocks. After a split, because the share price is reduced, the divisor must be adjusted downward to maintain a consistent index value.
For example, if a stock that is part of the DJIA undergoes a 2-for-1 split, the price of its shares will become half of what it was prior to the split. To ensure the DJIA reflects the same value as before the split, the divisor must be reduced. If the divisor were not adjusted, the index would appear to drop significantly, which would not accurately reflect the market's value. So, in response to the question, the correct answer is B) Decreases.