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CFA Level I · CFA Level I Exam · Benchmarking Returns

A price-weighted index contains stocks X, Y and Z priced at 20, 30 and 40 at the end of the year. Stock Z later undergoes a 2-for-1 split, and the divisor is adjusted so the index value is unchanged. The divisor before the split is 3. The new divisor after the split is closest to:

The new divisor is about 2.33. The index value of 30 must be preserved, and the post-split price sum is 70 because Z falls from 40 to 20. Dividing 70 by 30 gives 2.33.

  1. A2.00
  2. B2.33Correct
  3. C2.67

Explanation

Index before the split = (20+30+40)/3 = 30. After the split Z is priced at 20, so the sum is 20+30+20 = 70. New divisor = 70/30 = 2.33. Using 2.67 or 2.00 results from wrong price sums.

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