Question

Consider the three stocks in the following table. P(t) represents price at time t, and Q(t) represents shares outstanding at time t. Stock C splits two-for-one in the last period.

a.) What is the new divisor for the price-weighted index that is formed using Stocks A, B, and C if the starting divisor is 3?

b.)What is the rate of return for the price-weighted index that is formed using Stocks A, B, and C from time period 1 to time period 2?

	P(1)	Q(1)	P(2)	Q(2)
A	95	100	95	100
B	45	200	45	200
C	100	200	50	400

Answer 1

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