Question

A price weighted index is composed of 3 stocks. Stocks A, B, and C are trading for $100, $56 and $32 respectively. The number of shares outstanding are 1000 shares (for Stock A), 500 shares (for stock B) and 500 shares (for stock C). Stock A has a two for one stock split, and consequently its price automatically drops to $50 (all other stock prices remain unchanged). What must be the value of the new divisor

Answer 1

The total value will not change.

Step-by-step explanation:

Stock split occurs when a stock is divided into parts. The value of each stock will decline but there will be more stocks and overall value will remains same. If stock A goes through a stock split then the new price per stock will decline but the overall value to the investor will remain same.