Consider the following three stocks: $\begin{array}{lll}
\text { Stock } & \text { Price Number of shares}& \text { outstanding } \
\text { Stock A } & \$ 40 & 200 \
\text { Stock B } & \$ 70 & 500 \
\text { Stock C } & \$ 10 & 600
\end{array}$
Assume at these prices that the value-weighted index constructed with the three stocks is 490. What would the index be if stock B is split 2 for 1 and stock C 4 for 1?
A) 265
B) 430
C) 355
D) 490
E) 1000

Question

Consider the following three stocks: $\begin{array}{lll}
\text { Stock } & \text { Price Number of shares}&  \text { outstanding } \
\text { Stock A } & \$ 40 & 200 \
\text { Stock B } & \$ 70 & 500 \
\text { Stock C } & \$ 10 & 600
\end{array}$
 Assume at these prices that the value-weighted index constructed with the three stocks is 490. What would the index be if stock B is split 2 for 1 and stock C 4 for 1?
A) 265
B) 430
C) 355
D) 490
E) 1000

Quizplus · Accepted Answer

A stock split does not affect the total market value of a company or the value-weighted index. The index remains the same because the overall market capitalization of the stocks in the index does not change due to stock splits.

Consider the Following Three Stocks Assume at These Prices That the Value-Weighted Index Constructed with \text