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Five stocks are used to form a price weighted index and an equally weighted index. The stock prices were $20, $10, $50, $80 and $40
Five stocks are used to form a price weighted index and an equally weighted index. The stock prices were $20, $10, $50, $80 and $40 at time 0. Assuming the last stock just had a 2-for-1 split. (a) If a price weighted index had index value 80 at time 0, what is the new divisor after the stock split? (3 marks) (b) After the split, the new stock prices are $22, $15, $50, $78, and $24 at time 1, i. what is the new value for the price weighted index? (2 marks) ii. what is the rate of return for the equally weighted index? (3 marks) (c) Compare to market value weighted index, specify two disadvantage of the price weighted index? (2 marks)
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