16 – L1 15 Calculating Index After Add Or Delete V2

Going back to the issue of index deletes and index adds, when Monsanto was removed from the SMP 500 and replaced by Twitter, what happened to the index? Was it reset back to 100? Is there’s some fancy math to update the index? Well in fact, we use the same math as we did before. Prior to the replacement Monsanto was worth about $50 billion. On the day of replacement Twitter was worth about $30 billion. Let’s make up a fake company to serve as a placeholder for Monsanto before, and Twitter after the change. Let’s call this fake company, MonsanTwitter. Between the previous day and the current day, our placeholder MonsanTwitter changed its market cap from $50 billion to $30 billion. We calculate the percent change of the total market cap as usual and apply that to the previous index to get the current day’s index.

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