A stock index consists of 2 stocks: 1. Co. A has 50 shares outstanding valued at $2 each 2. Co. B has 10 shares outstanding valued at $10 each The price-weighted index is 6, and the value weighted index is 100. If the price of A’s stock increase to $4 per share, and B’s stock splites 2 for 1, and is priced at $5, the value of the price weighted index and value weighted index are: A. 7 and 150 B. 7 and 125 C. 4.5 and 150 My question is shouldnt the price weighted index adjusted for the split. I thought you would reduce the divisor so that the index before and after is the same regardless of the split. Before: (2+10) /2 = 6 Split: (2+5)/ X = 6 … (X=1.17) After (4+5) /1.17 = 7.71 Sorry for the long post, I’d appreciate any thoughts… thnx
The answer is A by the way…
Do it in the order of the question.
I think you are correct the price weighted Index is 7.71 and value weighted index is 150
I thought so… The Schweser explanation seemed way off. The formula they used was: (4+10) /2 = 7 I hope I am right…
Can someone verify from the errata? Thanks.