Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $93, $351, and $74, respectively. If Baker undergoes a 2-for-1 stock split, what is the new divisor for the price-weighted index?

1.98359

Explanation:

Given that :

Index have three stocks and the prices of those sticks are $93, $351, and $74, respectively. Usually what stock split does is to increase he number of share outstanding without any interference with the original total amount of money.

So if Baker ( the company B ) undergoes 2:1 split stock, it typically implies that one share will be divided by two shares.

New divisor for price - weighted index is given by the formula:

Price weighted index =

Price of stock B before stock split is = $351

To determine the new stock B after stock split; we have

Price weighted index₀ =

=

= $175.5

The new divisor for the price weighted index is as follows;

Price weighted index =

Price weighted index =

Price weighted index = 1.98359

Thus, the new divisor for the price weighted index = 1.98359

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