Question

In: Finance

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

Problem 5-9 Price-Weighted Divisor (LO4, CFA2)

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $55, $312, and $92, respectively. If Able undergoes a 3-for-4 reverse stock split, what is the new divisor?(Do not round intermediate calculations. Round your answer to 5 decimal places.)

Divisor=?

Solutions

Expert Solution

The new divisor is computed as shown below:

= ($ 55 x 3 / 4 + $ 312 + $ 92) / [ ($ 55 + $ 312 + $ 92) / 3 ]

= $ 445.25 / $ 153

= 2.91013 Approximately


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