### CFA Practice Question

The following 4 stocks are the components of a value-weighted index (series). Prices and # outstanding on January 1 are given in the table below. After close of trade on January 1, there is a 4 for 1 stock split for stock P. Price at the end of January 2 are also given in the table below.

Stock | Price (Jan 1) | # Outstanding (Jan 1) | Price (Jan 2)
M | \$12 | 2 M | \$14
N | \$20 | 4 M | \$18
O | \$32 | 3 M | \$32
P | \$16 | 5 M | \$5

On January 1 the index had a value of 100. What is the value of the value-weighted index at the end of January 2?
A. 101.47
B. 105.71
C. 103.14
Explanation: It will be 100 * (Initial Market Cap of all stocks) / (Final Market Cap of all stocks). In calculating market caps, remember that the number of shares outstanding for P has increased by a factor of 4.

### User Contributed Comments7

User Comment
jpducros mmm,to get answer B, it is more 100 * (Final market cap)/(initial market cap).

If you do a price-weighted index, you get Answer 1.
Sandar not really = final market cap / initial market cap

Final market cap should be adjusted for stock splits.
kindal why market cap should be adjusted for a split (price is divided by 4 and outstanding shares multiplied by 4)??
mjwoulf According to the formula provided 280/296 * 100 = 94.5, according to answer it should be 296/280 * 100 = 105.71. I must be missing something. Anyone?
jrojasut09 @mjwoulf

(V1/V0) * 100

NOT (V0/V1) * 100
cfastudypl that is correct jrojasut09> V1/VO*100
cfastudypl 296/280*100 = 105.71
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