A Price-Weighted Index Consists of Stocks A, B, and C

question 62

Multiple Choice

A price-weighted index consists of Stocks A, B, and C, which are priced at $38, $21, and $26 a share, respectively. The current index divisor is 2.7. What will the new index divisor be if Stock B undergoes a 3-for-1 stock split?

• A)2.1684
• B)2.2553
• C)2.5890
• D)2.7000
• E)3.1447

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Definitions:

Investor

An individual or entity that commits capital with the expectation of receiving financial returns, often through the purchase of stocks, bonds, or other investment vehicles.

Deferred Tax Liability

A tax obligation that a company owes but has not yet paid, arising from temporary differences between accounting and tax treatments of income and expenses.

Post-Acquisition

Refers to events, transactions, and changes in financial status that occur after one company acquires control of another company.

Asset Revaluation

The process of increasing or decreasing the carrying value of an asset to reflect its current fair market value.