If you don’t like an index that requires adjustments for stock splits, which one would be least likely to develop? A.Style Index B.Unweighted index C.Price-weighted index D.Value-weighted index I know that for a price-weighted index, the divisor will adjust automatically…so is C the correct answer? Thx
C.Price-weighted index it adjusts denominator for stock splits.
No that’s just the thing, you have to make an adjustment for stock splits in the denominator for price-weighted indexes like the DJIA. I’m going with D. Changing stock structure doesn’t change market capitalization.
the question asking ‘’…would least likely to develop?’ So, if i don’t like to adjust for splits, I would least likely to go for price-weighted index.
Yeash, sorry I missed that. Yes, you are right.
How exactly do you adjust for the split? Thanx
Compute the index value for the first year = N. After the split sum the new stock prices (X) and divide by the random varilable and set equal to N after find it. X/Base Yr = N X/Y =N