Able, Baker, and Charlie are the only three stocks in an index. The stocks sell

Question

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $93, $312, and $78, respectively. If Baker undergoes a 4-for-1 stock split. What is the new divisor now? (Do not round intermediate calculations. Round your answer to 5 decimal places.)

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $93, $312, and $78, respectively. If Baker undergoes a 4-for-1 stock split. What is the new divisor now? (Do not round intermediate calculations. Round your answer to 5 decimal places.)

Explanation / Answer

1. After split of the share of Baker into 4 for 1, its price will go down(roughly to 1/4, though not exactly). Index will be calculated after multiplying the new price by 4.(Divisor=0.25)

2. If the the stock undergoes the split of 3 for1, the new price of the share after the split (which will be roughly 1/3 after the split, though not exactly) will be multiplied by 3.(Divisor=0.33

3. Incidentally, major stock indexes are weighted to reflect the market capitalization of its components.

4. Market capitalization is calculated by multiplying the market price of the share with the number of shares

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