Question
Consider two stocks, A and B, with the following prices on two given dates. (Date 2 prices are pre-split.) Stock Date 1 Date 2 A
Consider two stocks, A and B, with the following prices on two given dates. (Date 2 prices are pre-split.) Stock Date 1 Date 2 A $11 $20 B $6 $10 On Date 1, there are 200 shares of stock A and 80 shares of stock B outstanding. On Date 2, stock B splits two-for-one. (a) Assume that stocks A and B are to make up a price-weighted market index. Show both the pre-split and post-split values of the index on Date 2. What is the post-split divisor? (b) Again, assume that stocks A and B are to make up your market index. As of Date 2, compute the value of the value-weighted index. Date 1 is your base period. The base period ending value of the index is 110. (c) Assume that you wish to calculate an equal-weighted market index composed of stocks A and B. What is the value of the index on Date 2 if Date 1 is your base year and has a value of 60 at the end of that period. Problem #2
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