Consider two stocks, A and B, with the following prices on two given dates. (Date 2 prices are pre-split.) Stock A - Date 1: $10 Date 2: $20 Stock B - Date 1: $5 Date 2: $8 On Date 1, there are 100 shares of stock A and 50 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 100.

(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 50 at the end of that period.