Question

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $90, $200, and $108, respectively. If Baker undergoes a 2-for-1 stock split, what is the new divisor for the price-weighted index

Answer 1

2.25

Step-by-step explanation:

Divisor = (Sum of prices after split) * Number of stocks / Sum of prices before split

Divisor = ($90 + $200/2 + $108) * 3 / $90 + $200 + $108

Divisor = $298*3 / $398

Divisor = $894 / $398

Divisor = 2.246231155778894

Divisor = 2.25

So, the new divisor for the price-weighted index is 2.25.