 Hello, everyone. This is Professor Farhad. In this session, I will explain how Apple's 4-to-1 stock split will affect the Dow, and I will show you that in numbers, specifically how does it affect the Dow. Yesterday, July 30th, Apple decided to do so. In other words, if you own one share of Apple stock and the share was traded, let's assume it's traded at 400, at some point by the end of next month, you're going to wake up with four shares rather than one share, but the price will be $100. Now, why did Apple do so? Well, your value does not change. If you have one shares at 400, your value is 400. If you have four shares at 100, your value is still at 400. So as an investor, you are still in the same position before and after the split, but now you have more shares. Why did Apple do so? One reason that Apple quoted is because the price seems to be a little bit high for average investors. They want the average investor to perceive the stock as cheaper, so that's part of it. There are other reasons we're not going to go into this, but how does that affect the Dow and why does this affect the Dow Jones? The Dow Jones Industrial is a price-weighted index. It means the 30 stocks, the 30-member blue chip index, the stocks, which is Apple is part of it. The index is influenced by the price of the stock, and right now, Apple, I will show you in a moment, has the highest price in that group. And what's going to happen once the index is adjusted, it's going to be toward the middle, the 15th or the 16th most significant member. Right now, it's the most significant. It's going to go from number one to number 15th and 16th. The Dow price-weighted means that the value of the stock gauges is determined by the price changes of its components. So as the prices of the component changes, the Dow changes every day. So the overall value of the index is computed by adding the price of the component and dividing by the so-called Dow divisor. Now, this Dow divisor is giving to us. It's computed by the Dow and currently stand at 0.14745683, so on and so forth. This means that every dollar move of a company translates into 6.8-point swing in the Dow. So let me show you on an Excel sheet, how does this all fit together and what does that mean from a numerical perspective? So what I did is I took a snapshot from July 31st. So again, those prices are changes constantly from the Dow. And this is the last price as of July 34th. I took the snapshot around maybe 9.45, 10 o'clock. I don't remember what time. But here's what happened. Here's Apple United. I have them all from the highest price to the lowest price. And notice, just want to clearly show you right now, Apple was trading, when I took the snapshot, was trading at 400 and Pfizer is the lowest, you know, has the least influence because it doesn't have a high price. Simply put, if you add all the prices of the Dow, they are up to 3,836. You don't take 3,836 and you divide by 30. You'll get something around 127. That's not the price of the Dow. The divisor is not 30. When the Dow started the first day, it was 30. Now the divisor is what I just showed you, 0.1474568 so on and so forth. So we can say 1.54 rounding. So simply put, and why did the divisor change over the years? When the company have a stock split, when they have a stock dividend, when one company leaves the Dow and another company comes to the Dow with a different price, they have to adjust the divisor. So divisor is given to us. Simply put, at this moment, when I capture those prices, if I take 3,836, the prices of all the Dow divided by the divisor, the Dow was trading at $26,016. Now what does that mean? It means each dollar in the Dow, if I divide the, if I divide $26,016 by $3,836 every dollar in the Dow, so each dollar in the Dow contributed to $6.78 change in the Dow. So when a stock, if Cisco system goes from 4616 to 4716, this will increase the Dow by 6.78. So each dollar will increase the Dow by 6.78. Simply put, let me do a quick computation for Apple today. So if Apple today increased by 2%, what does that mean? It's right now, it's trading at 408. If it increased by 2%, what I did is I took 408 times 40871 408.71 times .02, it will increase by $8.17. So if I take the $8.17 multiplied by the factor 6.78, the Dow will go up by 55 points if Apple goes up by 2%. At the end of the month, when Apple becomes, when Apple split 4 to 1, the price of Apple becomes $102.18. This is, this will be the new price, the new equivalent price of the price right now. So when we have the new price and the Dow goes up by, not the Dow, and Apple goes up by 2%, so 102.18 times 2%, that's going to give us the, the Apple will increase by $2.04 pennies. We're going to multiply this by 6.78 and it will contribute only to 13.686 points to the Dow. So notice it makes a huge difference. Why? Because Apple, it was at 400, the highest, the highest, the highest member of the Dow. And once it becomes 100, it's going to go down to someplace in this 100 someplace here. So someplace in this area, it will be someplace in this area. Therefore, changes in Apple will not affect, affect the Dow as much as today. That's the whole point of it. That's the whole point of the stock split and how does it affect the Dow? I hope you like this recording. As always, I'm going to invite you to visit my website, farhatlectures.com, if you're an accounting or finance students, especially if you're studying for your CPA, CFA, CMA exam, study hard, stay safe, and best of all,