In schweser mocks vol. 1 p.148 question 88, it talks about a price weighted index and the effects of a split on one stock in a 2 stock index. One stock increases and the other splits. However they use the original pre-split price for calculating the index instead of the new price under the split. Why is this? I thought price weighted indexes had downward bias because of this fact… Last minute help?
yeah, i think they screwed this up. the new price weighted index should be 7.7143
shouldn’t the denominator be adjusted?
Forget that question now. Go to the CFAI mock Q82 AM has the “right way” of doing it.