Consider the following three stocks: $$\begin{array} { l c c }
\text { Stock } & \text { Price } & \text { Number of shares outstanding } \
\hline \text { Stock A } & \$ 40 & 200 \
\text { Stock B } & \$ 70 & 500 \
\text { Stock C } & \$ 10 & 600
\end{array}$$
Assume at these prices 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: $$\begin{array} { l c c } 
\text { Stock } & \text { Price } & \text { Number of shares outstanding } \
\hline  \text { Stock A } & \$ 40 & 200 \
\text { Stock B } & \$ 70 & 500 \
\text { Stock C } & \$ 10 & 600
\end{array}$$
Assume at these prices 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 index remains the same at 490.

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