QUESTION 1 Suppose there are only two stocks in the market and the following inf

Question

QUESTION 1

Suppose there are only two stocks in the market and the following information is given:

Suppose that McBeal splits 2-for-1. Based on beginning information, what is the new divisor? (Note: Before the split, the divisor is 2. Round your answer to four decimal places.)

QUESTION 2

On August 30, 2010, the DJIA closed at 10,457.31. The divisor at that time was 0.12091. What would the new index level be if all stocks on the DJIA increased by $6.00 per share on August 31, 2010?

Shares Outstanding Beginning of Year Price End of year Price Ally Co. 100 million $60 $66 McBeal, Inc. 400 million 112 100

Explanation / Answer

Q1

After split of the share of Mc Beal inc. into 2 for 1, its price will go down(roughly to 1/2, though not exactly). Index will be calculated after multiplying the new price by 2.(so, the new Divisor=0.50)

Q2

DJIA is increased by 6% means =10457.31*6/100=627.42

DJIA closing price is 10,457.31

Increase of 6%= 627.42

Divisor 0.12091

New index level is =627.42/0.12091

                               =5189.14895

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