What Effect Does a Stock Substitution or Stock Split Have

question 42

Multiple Choice

What effect does a stock substitution or stock split have on a price-weighted series?

• A) Index remains the same, divisor will increase/decrease.
• B) Divisor remains the same, index will increase/decrease.
• C) Index and divisor will both remain the same.
• D) Index and divisor will both reflect the changes (immediately).
• E) Not enough information is provided.

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Definitions:

Expected Return

The return an investor believes is most likely on an investment—that is, the investor understands that the actual return may be somewhat different in certain investments like stocks. The mean of the probability distribution of returns.

Selling Price

The amount of money for which a product or service is sold to customers.

Dividend

A portion of a company's earnings distributed to its shareholders, usually in cash or as shares.

Investment Return

The gain or loss on an investment over a specified period, including income and changes in value, expressed as a percentage of the investment's cost.