Assume that on a particular day, the DJIA opened at 11,960.09. The divisor at th
ID: 2772857 • Letter: A
Question
Assume that on a particular day, the DJIA opened at 11,960.09. The divisor at that time was .132550914. What would the new index level be if all stocks on the DJIA increased by $1.00 per share on the next day? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Assume that on a particular day, the DJIA opened at 11,960.09. The divisor at that time was .132550914. What would the new index level be if all stocks on the DJIA increased by $1.00 per share on the next day? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Explanation / Answer
DJIA index has 30 stocks with index calculated as sum of all 30 stock prices/divisor.
Given initially,
sum of all 30 stock prices/.132550914= 11,960.09
=> sum of all 30 stock prices= 11,960.09*.132550914 (multiply both sides by .132550914)
=> sum of all 30 stock prices= 1585.32086
If all 30 stocks on the DJIA increased by $1.00 per share on the next day then overall sum of all 30 stock prices increases by 30*$1.00=$30 next day. Thus new sum of all 30 stock prices=1585.32086+30=1615.32086
new divisor remains constant as there is no stock split or stock dividend therefore new divisor=old divisor=.132550914
Thus new Index level= new sum of all 30 stock prices/new divisor= 1615.32086/.132550914= 12186.42