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The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance): Suppose that Douglas McDonnell shareholders approve a 7-for-1 stock split on January 1, 2017.

Price
Shares (millions) 1/1/16 1/1/17 1/1/18
Douglas McDonnell 530 $62 $66 $81
Dynamics General 230 34 28 42
International Rockwell 330 63 52 68

What is the new divisor for the index?

Respuesta :

Answer:

Index value on January 1, 2014 prior to split = (66+28+52)/3 = 48.6667

After Split

(33+28+52)/d = 48.6667

d = 113/48.6667

d = 2.322

Answer

New divisor : 2.322

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