Question
What would happen to the divisor of the Dow Jones Industrial average if FedEx, with a current price of around $180 per share, replaced AT&T
What would happen to the divisor of the Dow Jones Industrial average if FedEx, with a current price of around $180 per share, replaced AT&T (with a current value of about $34 a share)?
The correct answer she gave is below, but I do not understand it or how she got it. If someone could explain this it would be much appreciated. Thanks!
In this case, the value of the divosor will increase by an amount necessary to maintain the index value on the day of the change. For example, if the index was comprised of only one stock, it would increase by 2.06 points: ($180 - $34) / $34 = 4.29
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