Able Baker and Charlie are the only three stocks in an index

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $92, $340, and $70, respectively. If Baker undergoes a 2-for-1 stock split, what is the new divisor for the price-weighted index?

Solution

Current index divisor = ($92+$340+$70)/3 = 167.33

Price of baker stock after stock split = $340/2 = $170

Revised index divisor = ($92+$170+$70)/$167.33 = 1.98