Question
In: Finance
Consider the following three stocks: Stock PriceNumber of shares outstanding Stock A$40200 Stock B$70500 Stock C$10600...
Consider the following three stocks:
Stock PriceNumber of shares outstanding
Stock A$40200
Stock B$70500
Stock C$10600
Assume at these prices that 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?
265
430
355
490
1000
Solutions
Expert Solution
After Stock Split below will be the Stock PriceNumber of shares outstanding
Stock A - Price is $40 , share outstandng is 200
Stock B - Price is $35 , share outstandng is 1000, since in split of 2 for 1 , The stock price will be half and share outstanding will be double.
Stock B - Price is $2.5 , share outstandng is 2400, since in split of 4 for 1 , The stock price will be one fourth and share outstanding will be four times
Total Market capitalisation before split will be
Sum of price * Share oustanding for all three stocks
Market capitalisation of Stock A =40*200= 8000
Market capitalisation of Stock B =70*500= 35000
Market capitalisation of Stock C =10*600= 6000
Total will be 49000
Total Market capitalisation after stock split will be
Sum of price * Share oustanding for all three stocks
Market capitalisation of Stock A =40*200= 8000
Market capitalisation of Stock B =35*1000= 35000
Market capitalisation of Stock C =2.5*2400= 6000
Total will be 49000
Since there is no change in the total of market capitalisation, there will be no change in value weighted index. So it will remain at the level of 490.
.
jeff jeffy answered 1 year agoRelated Solutions
24. Consider the following three stocks: stock price number of shares outstanding Stock A $40 200...
24. Consider the following three stocks:
stock price number of shares outstanding
Stock A $40 200
Stock A $70 500
Stock A $10 600
Assume at these prices that 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) 355 B) 430 C) 1000 D) 490 E) 265
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7.2%....
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A
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$100
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B
$50
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C
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(That is, each of the correlation coefficients is between 0 and
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Expected
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A
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