Question

Problem 5-1 Price-Weighted Divisor (LO4, CFA2)

Able, Baker, and Charlie are the only three stocks in an index.
The stocks sell for $38, $200, and $106, respectively. If Baker
undergoes a 3-for-2 stock split, what is the new divisor for the
price-weighted index? **(Do not round intermediate
calculations. Round your answer to 5 decimal places.)**

Answer #1

Initial stock price of Able is $38, Baker is $200 and Charlie is
$106.

The value of a price-weighted index consisting of these three
stocks= ($38+$200+$106)/3=$114.6666667

After 3-for-2 split, the new stock price of Baker will be
$200/(3/2)=$133.3333333

Now, the index divisor needs to be adjusted so that the index value
would remain at $114.6666667

Let the new divisor be "x"

So, ($38+$133.3333333+$106)/x=$114.6666667

=>277.3333333/x=114.6666667

=>277.3333333/114.6666667=x

=>x=2.41860465

So, the value of new divisor for the price-weighted index=2.41860
(rounded up to 5 decimal places)

Problem 5-4 Price-Weighted Index (LO4, CFA2)
Assume the following information concerning two stocks that make
up an index. What is the price-weighted return for the index?
(Do not round intermediate calculations. Enter your answer
as a percent rounded to 2 decimal places.)
Price per Share
Shares Outstanding
Beginning of Year
End of Year
Kirk, Inc.
36,000
$
43
$
47
Picard Co.
26,500
74
83
RETURN __________ %

Problem 5-18 Equally Weighted Indexes (LO4, CFA2)
In addition to price-weighted and value-weighted indexes, an
equally weighted index is one in which the index value is computed
from the average rate of return of the stocks comprising the index.
Equally weighted indexes are frequently used by financial
researchers to measure portfolio performance.
The following three defense stocks are to be combined into a
stock index in January 2016 (perhaps a portfolio manager believes
these stocks are an appropriate benchmark for...

A price-weighted index consists of stocks A, B, and C which are
priced at $38, $24, and $26 a share, respectively. The current
index divisor is 2.7. What will the new index divisor be if stock B
undergoes a 3-for-1 stock split? (Round your final answer to four
decimal points.)

A price-weighted index consists of stocks A, B, and C which are
priced at $50, $35, and $15 a share, respectively. The current
index divisor is 2.75. What will the new index advisor be if stock
A undergoes a 5-for-1 stock split?
A. 0.40
B. 0.65
C. 1.00
D. 1.65

A price-weighted index consists of stocks A, B, and C which are
priced at $50, $35, and $15 a share, respectively. The current
index divisor is 2.75. What will the new index advisor be if stock
A undergoes a 5-for-1 stock split?
Multiple Choice
A. 0.40
B. 0.65
C. 1.00
D. 1.65
1.85

5. A price-weighted index has 3 stocks: A, B and C. Their price
at the start of the index was $35, $48 and $90.
What is the initial divisor if the index start with a value of
100?
By the end of the first year, the price of the 3 stocks is $40,
$52 and $83 respectively. How much has the index gone up?
If stock C has a 3-for-1 split, what would be the new index
value after one...

Consider the three stocks in the following table. Pt represents
price at time t, and Qt represents shares outstanding at time t.
Stock C splits two-for-one in the last period. P0 Q0 P1 Q1 P2 Q2 A
93 100 98 100 98 100 B 53 200 48 200 48 200 C 106 200 116 200 58
400 a. Calculate the rate of return on a price-weighted index of
the three stocks for the first period (t = 0 to t...

Assume that you construct a price weighted index of 30 stocks.
The sum of the prices of these stocks is $4000. The divisor for
this index is 30, and the value of this index is 100. Now assume
that one of the 30 stocks, with an average price of $400, has a
four-for-one stock split while the value of other stocks remains
unchanged.
a) If you make no adjustments to the index, what will be the new
value of the...

Consider the three stocks in the following table.
Pt represents price at time t, and
Qt represents shares outstanding at time
t. Stock C splits two-for-one in the last period.
P0
Q0
P1
Q1
P2
Q2
A
86
100
91
100
91
100
B
46
200
41
200
41
200
C
92
200
102
200
51
400
a. Calculate the rate of return on a
price-weighted index of the three stocks for the first period
(t = 0 to t...

Consider the three stocks in the following table.
Pt represents price at time t, and
Qt represents shares outstanding at time
t. Stock C splits two-for-one in the last period.
P0
Q0
P1
Q1
P2
Q2
A
99
100
104
100
104
100
B
59
200
54
200
54
200
C
118
200
128
200
64
400
a.
Calculate the rate of...

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