Question

77. The Hydro Index is a price weighted stock index based on the 5 largest boat manufacturers in the nation. The stock prices for the five stocks are $10, $20, $80, $50 and $40. The price of the last stock was just split 2 for 1 and the stock price was halved from $40 to $20. What is the new divisor for a price weighted index

Answer 1

Answer:

1.The stock prices for the five stocks before the split is $40

2. The new divisor for a price weighted index is $ 4.5 after the split

Step by Step Explanation:

1.

Price weighted index =10+20+80+50+40/5

Price weighted index =40

Therefore, the price-weighted index before the split is 40.

2.After the split, the last stock became half to the original value. The value of last stock before the split is $40 and after the split is $20.

To find the new price divisor, let assume the denominator is X.

40=10+20+80+50+20/X

Therefore X=10+20+80+50+20/40

X = $4.5

Therefore, the new price divisor for the price-weighted index after the split is $4.5