a bit confused as to how a stock split affects a price weighted index. i read somewhere that, the stock split doesnt affect the numerator of the index, just the divisor. since the price changes after a stock split .

Suppose that you have three stocks: A, B, and C. Their share prices are:

- A: $10/share
- B: $20/share
- C: $100/share

The index value is 100, so the divisor is:

($10 + $20 + $100) / *d* = 100

$130 = 100_d_

*d* = $1.30

Suppose that stock C undergoes a 4:1 split. Its new share price is $25/share, and the new divisor is:

($10 + $20 + $25) / *d* = 100

$55 = 100_d_

*d* = $0.55

The index value doesn’t change (it’s still 100), but the divisor decreases from $1.30 to $0.55.

thanks so much. i get it now.

I’m so glad to hear that.

Best of luck on the exam!