4. Price-weighted Index and Tracking Portfolio Consider a hypothetic price-weighted index created using the three stocks...

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4. Price-weighted Index and Tracking Portfolio Consider a hypothetic price-weighted index created using the three stocks below: Stock X Y Z Price before split $10 $40 $200 Price after split $10 $40 $50 Outstanding Shares (mil) before split Outstanding Shares (mil) after split 400 400 100 100 10 40 Yesterday before market close, Stock Z has completed a 4-for-1 split. Prices before and after the split are listed above. of the stock did you purchase? a) Right before Stock Z's 4-for-1 split, you successfully created a portfolio to track the return on the price-weighted index of Stock X, Stock Y and Stock Z. If the portfolio was created with an initial investment of $5,000, how many shares of each b) Right after Stock Z's 4-for-1 split, was the portfolio still price-weighted? If not, which stock's share(s) did you need to sell purchased/sold. and which to buy so that the portfolio can remain price-weighted? Calculate the number of shares needed to be then? c) Right before Stock Z's split, the divisor of the price-weighted index was "3". What was the price-weighted index's level d) Divisor of a price-weighted index will need to be adjusted whenever there is a split among its constituent stocks. What would be the new divisor after Stock Z's split? e) Does a price-weighted index need to be rebalanced for price changes? Page 4 of 4 4. Price-weighted Index and Tracking Portfolio Consider a hypothetic price-weighted index created using the three stocks below: Stock X Y Z Price before split $10 $40 $200 Price after split $10 $40 $50 Outstanding Shares (mil) before split Outstanding Shares (mil) after split 400 400 100 100 10 40 Yesterday before market close, Stock Z has completed a 4-for-1 split. Prices before and after the split are listed above. of the stock did you purchase? a) Right before Stock Z's 4-for-1 split, you successfully created a portfolio to track the return on the price-weighted index of Stock X, Stock Y and Stock Z. If the portfolio was created with an initial investment of $5,000, how many shares of each b) Right after Stock Z's 4-for-1 split, was the portfolio still price-weighted? If not, which stock's share(s) did you need to sell purchased/sold. and which to buy so that the portfolio can remain price-weighted? Calculate the number of shares needed to be then? c) Right before Stock Z's split, the divisor of the price-weighted index was "3". What was the price-weighted index's level d) Divisor of a price-weighted index will need to be adjusted whenever there is a split among its constituent stocks. What would be the new divisor after Stock Z's split? e) Does a price-weighted index need to be rebalanced for price changes? Page 4 of 4