Question

0. Pick two of the major stock indices; explain what type of companies they represent and discuss what could be the purpose of monitoring those indices.

1. Now, select a publicly traded company and imagine you were to invest in the shares of common stock of that company. How would you evaluate the risk of your investment? Which one of the stock indices do you use to evaluate your investment risk?

Answer 1

A stock market index is a section of stocks in a market. It is used by traders and economists to compare returns on different assets, to track the overall economy or as an investment vehicle. Among the most common types of indexes include global indices, regional indices and national indices.

i pick two of the major stock indices of india that are following:-

1. sensex

2 Nifty

They represent many types of company as explained below:-

sensex:-

• 30 companies are selected on the basis of the free float market capitalization.
• These are different companies from the different sectors representing a sample of large, liquid and representative companies.
• it is an indicator of market movement.

Nifty:-

• Nifty is calculated using 50 large stocks which are actively traded on the NSE.
• 50 companies are selected on the basis of the free float market capitalization.
• Here, the 50 top stocks are selected from different 24 sectors.
• Nifty is owned and managed by India Index Services and Products (IISL)

The purpose of monitoring those indices.:-

• The market indexes are the barometer for the market behavior. It gives a general idea about whether most of the stocks have gone up or gone down.
• It is used as a reflector of investor’s sentiments.
• They are used in passive fund management by Index funds.
• The market indexes are the barometer for the market behavior. It gives a general idea about whether most of the stocks have gone up or gone down.

Evaluate the risk of investment from following factors:-

1. Standard Deviations:- measures how widely a stock’s price has gone up and down in the past from its average price. More change results in a higher historic volatility.
2. Beta:-  measures how the stock is doing compared to a given benchmark.A stock with a beta between 0.0 and 1.0 has smaller ups and downs.

i used both indices for evaluate investment risk