An equally weighted index has three stocks A, B, and C priced at $10, $20, and...

An equally weighted index has three stocks A, B, and C priced at $10, $20, and $20 yesterday, respectively. Yesterday, stock A has a split where one share split into 2 and the price was reduced from $10 to 5. If the equally weighted index was 100 yesterday and the prices changed to $6, $18, and $17, what is the new index value? 16.11 102.54 89.6 98.33

Expert Solution

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

Equally weighted index assigns equal weight to each of its constituent securities.

Equal weighted index = (1+ average percentage change in index stocks)* initial index value

Average % change ={ [(2*6-10)/10]+[(18-20)/20]+[(17-20)/20] }/3

= -5%/3

= -1.66667%

=(1-0.016667)*100

= 98.33

jeff jeffy answered 2 years ago

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