Definition: [crh] Used in construction of stock indices. Suppose there 10 stocks in an index, each worth $10 and the index is at 100. Now suppose that onDefinition: e of the stocks must be replaced with another stock that is worth $20. If no adjustment is made to the divisor, the total value of the index would be110 after the swappingDefinition: . yet there should be no increase in value because nothing has happened other than switching the two constituents. The solution is to change the divisor; in this case from 1.00 to 1.10. Note that theDefinition: value of the index, 110/1.1, is now exactly 100 - which is where it was prior to the swap.

<< Go back