Question

The price-weighted Dow Jones Industrial Average Index closed at 12,500 today and the divisor was 0.14. One of the 30 constituent stocks had a 5-for-1 stock split right declining from $100 to $20 per share right after the market close (immediately after the index value and divisor above were observed). What would the new divisor have to be to keep the index value unchanged at 12,500?

Group of answer choices

1) 0.1320

2) 0.1424

3) 0.1416

4) 0.1336

Answer #1

**Answer: 4) 0.1336**

**Calculation:**

Value of Price weighted index = Total sum of constituent prices / Divisor

Currently, the Value of Dow Jones = 12500 and Divisor is 0.14

So, Current sum of prices of all 30 constituent is = Value of index * Divisor

= 12500 * 0.14

= 1750.

After Split, One stock's per-unit price will be $20 from $100. Which leads to a decline of $80 per share.

So, the New Sum of the price of 30 constituent will decline by $80.

New sum of prices = $1750 - $80 = $1670.

So, New Divisor = New sum of prices / New Dow Jones value.

= 1670 / 12500

= **0.1336**

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...

Match the description to the correct index.
1. An price-weighted average of 30 stocks.
2. The best measure of overall market performance.
3. A market-value weighted index heavily weighted in technology
stocks.
Dow Jones Industrial Average
S&P 500
Nasdaq

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Explain how it is possible for one proxy (S&P 500) to have a
positive return while the other (DJIA) has a negative return on any
given day. Include in your explanation some names that could have
caused this discrepancy. Which return (S&P 500...

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