Reading 53: Security-Market Indexes - LOS a, (Part 1) ～ style, index

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1.In a value-weighted index firms with:

A)   larger market caps have lesser impacts on the index.

B)   greater market caps have greater impacts on the index.

C)   higher stock prices have greater impacts on the index.

D)   more shares outstanding have greater impacts on the index.

2.Which of the following statements best describes the investment assumption used to calculate an unweighted price indicator series?

A)   An equal dollar investment is made in each stock in the index.

B)   A proportionate market value investment is made for each stock in the index.

C)   An equal number of shares of each stock are used in the index.

D)   A proportionate market capitalization is made for each stock in the index.

3.Which of the following weighting schemes will produce a downward bias on the index due to the occurrence of stock splits by firms in the index?

A)   Market value-weighted series.

B)   Capital value-weighted series.

C)   Price-weighted series.

D)   Unweighted price indicator series.

4.Assume a stock index consists of many firms who have recently split their stock. Which of the following weighting schemes will see a bias due to the impact of stock splits?

A)   Unweighted price series.

B)   Market value-weighted series.

C)   Standard and Poor’s 500 Index.

D)   Price-weighted series.

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答案和详解如下：

1.In a value-weighted index firms with:

A)   larger market caps have lesser impacts on the index.

B)   greater market caps have greater impacts on the index.

C)   higher stock prices have greater impacts on the index.

D)   more shares outstanding have greater impacts on the index.

The correct answer was B)

In a value weighted index, firms with greater market caps have a greater impact on the index than firms with lower market caps. A higher stock price does not necessarily mean a higher market cap.

2.Which of the following statements best describes the investment assumption used to calculate an unweighted price indicator series?

A)   An equal dollar investment is made in each stock in the index.

B)   A proportionate market value investment is made for each stock in the index.

C)   An equal number of shares of each stock are used in the index.

D)   A proportionate market capitalization is made for each stock in the index.

The correct answer was A)

The unweighted price indicator series assumes that an equal dollar investment is made in each stock in the index. All stocks carry equal weight regardless of their price or market value.

3.Which of the following weighting schemes will produce a downward bias on the index due to the occurrence of stock splits by firms in the index?

A)   Market value-weighted series.

B)   Capital value-weighted series.

C)   Price-weighted series.

D)   Unweighted price indicator series.

The correct answer was C)

The price-weighting scheme sums the market price of each of the stocks contained in the index and then divides this sum by the number of stocks in the index. Thus if a firm executes a stock split thereby reducing its share price, this will cause a downward bias in the index.

4.Assume a stock index consists of many firms who have recently split their stock. Which of the following weighting schemes will see a bias due to the impact of stock splits?

A)   Unweighted price series.

B)   Market value-weighted series.

C)   Standard and Poor’s 500 Index.

D)   Price-weighted series.

The correct answer was D)

Firms that split their stock price will have the identical weight before and after the split in both the unweighted and the market value-weighted series. However, in the price-weighted series, large successful firms will lose weight within the index due to simply splitting their stock. This creates a downward bias in a price-weighted series. Standard and Poor’s 500 Index is a market value-weighted index.