Consider the following three stocks: $$\begin{array} { l c c }
\text { Stock } & \text { Price } & \text { Number of shares } \
\text { Stock A } & \$ 40 & 200 \
\text { Stock B } & \$ 70 & 500 \
\text { Stock C } & \$ 10 & 600 \
\hline
\end{array}$$ 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: $$\begin{array} { l c c } 
\text { Stock } & \text { Price } & \text { Number of shares } \
\text { Stock A } & \$ 40 & 200 \
\text { Stock B } & \$ 70 & 500 \
\text { Stock C } & \$ 10 & 600 \
\hline
\end{array}$$ 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 change the total market value of the stocks, so the value-weighted index remains the same at 490.

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