Equity Investments【Reading 48】Sample period, security, represent, 2012

Gypsy

When using a security market index to represent a market’s performance, the performance of that market over a period of time is best represented by:

A) the percent change in the index value.

B) the index value.

C) the change in the index value.

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Percentage changes in the value of a security market index over time represent the performance of the market, segment, or asset class from which the securities are chosen.

terpsichorefan

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Gypsy

Equal weighting is the most common weighting methodology for indexes of which of the following types of assets?

A) Hedge funds.

B) Equities.

C) Fixed income securities.

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Most hedge fund indexes are equal-weighted. Equity and fixed income indexes are predominately market capitalization weighted.

Gypsy

Which of the following sets of indexes are price-weighted?

A) Dow Jones World Stock Index and Russell Index.

B) Dow Jones Industrial Average and Nikkei Dow Jones Stock Market Average.

C) S&P 500 Index and Dow Jones Industrial Average.

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The Dow Jones World Stock Index, the Russell Index, the S&P 500 Index, and Morgan Stanley Capital International Index are all market-value weighted. Only the Dow Jones Industrial Average and the Nikkei Dow Jones Stock Market Averages are price-weighted.

Gypsy

Which of the following indexes is a price weighted index?

A) The New York Stock Exchange Index.

B) The Nikkei Dow Index.

C) The Standard and Poor's Index.

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The Nikkei Dow Index is a price-weighted index. The other two are market value-weighted indexes.

Gypsy

Voluntary reporting of performance by hedge fund managers leads to:

A) an upward bias in hedge fund index returns.

B) a downward bias in hedge fund index returns.

C) no appreciable bias in hedge fund index returns.

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Empirical studies have shown that since hedge fund managers have the option to report performance results only funds with good results will report. Since funds with poor performance do not report their results, the results of hedge fund indexes will be biased upwards.

Gypsy

Which of the following statements is most accurate regarding commodity indexes?

A) Weighting methodology varies among index providers and leads to differences in index risk and returns.

B) Commodity indexes are based on spot prices, while most investors purchase futures contracts.

C) The return to commodity indexes consists of two major components: the risk-free rate of return and the roll yield.

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Weighting methodology is a major issue for commodity indexes. Several different methodologies are used, including equal weighting and global production values. Differences in weighting cause differing exposures for the indexes and lead to different risk and return profiles.
Commodity indexes represent futures contracts on commodities, not the actual spot prices of commodities. Commodity index returns come from three sources: the risk-free rate of return, changes in futures prices, and the roll yield.

Gypsy

Commodity price indexes are based on the prices of:

A) futures contracts.

B) real assets such as grains, oil, and precious metals.

C) commodities.

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The constituent securities of commodity price indexes are commodity futures contracts. As a result, the return on a commodity index can be different than the returns from holding the constituent commodities themselves.

Gypsy

Which of the following is NOT a reason bond market indexes are more difficult to create than stock market indexes?

A) The universe of bonds is much broader than that of stocks.

B) Bond deviations tend to be relatively constant.

C) There is a lack of continuous trade data available for bonds.

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Bond prices are quite volatile as measured by the bond’s duration.

Gypsy

Which of the following regarding bond market indexes is least accurate?

A) Unlike stocks, bonds lack continuous price trading data.

B) The bond universe is more stable than the stock universe.

C) There are more bond issues than stocks.

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One reason why the creation of a bond index is more difficult than a stock index is due to the fact that the universe of bonds is constantly changing because of numerous new issues, bond maturities, calls, and bond sinking funds.