Explain how a price-weighted stock index must be adjusted to reflect the stock split of a company.

Question:

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Answer rating: 100% (1 review)

Answer A priceweighted stock index is calculated by adding up the prices of all the individual stocks in the index and then dividing by a divisor The divisor is used to adjust the index for events such as stock splits dividends or other corporate actions to maintain continuity in the indexs value over time When a company undergoes a stock split the number of shares outstanding increases while the price per share decreases proportionally To adjust for this change in price due to the split the divisor of the index must be adjusted accordingly The adjustment ensures that the overall value of the index remains consistent before and after the split The adjustment process involves recalculating the divisor based on the ratio of the new shares issued to the old shares along with any changes in the stock prices The formula to calculate the adjusted divisor is AdjustedDivisor OldIndexValue NewIndexValue OldDivisor Heres how the adjustment process works 1 Calculate the ratio of the new shares to the old shares resulting from the stock split 2 Adjust the individual stock ...View the full answer

Answered By

Muhammad Salman Alvi

Well, I am a student of Electrical Engineeing from Information Technology University of Punjab. Just getting into my final year. I have always been good at doing Mathematics, Physics, hardware and technical subjects. Teaching profession requires a alot of responsibilities and challenges. My teaching experience started as an home tutor a year ago. When I started teaching mathematics and physic subjects to an O Level student. He was about 14 years old. His name was Ibrahim and I used to teach him for about 2 hours daily. Teaching him required a lot of patience but I had to be polite with him. I used to give him a 5 min break after 1 hour session. He was quite weak in basic maths and calculation. He used to do quite a lot of mistakes in his homework which I gave him weekly. So I decided to teach him basics from scratch. He used to say that he got the concept even if he didn't. So I had to ask him again and again. I worked on his basics for a month and after that I started taking a weekly test sesions. After few months he started to improve gradually. Now after teaching him for about a year I can proudly say that he has improved alot. The most important thing was he managed to communicate all the difficullties he was facing. He was quite capable and patient. I had a sincere desire to help him reach to its full potential. So I managed to do that. We had a very good honest relationship of a student and a teacher. I loved teaching him as a tutor. Now having an experience of one year teaching I can read students quite well. I look forward to work as an online tutor who could help students in solving their all sort of difficulties, problems and queries.

4.90+ 29+ Reviews 43+ Question Solved

Related Book For book-img-for-question