Question

1. In creating a market series index, the effect of low-priced stocks will have the highest relative impact in which of the following weighting schemes?

A. Price-weighted series.

B. Equal-weighted price series

C. Market capitalisation-weighted series.

2. Which of the following is mot likely to be an example of style indices?

A. An index which consists of cyclical stocks.

B. An index which consists of emerging market stocks.

C. An index which consists of large market capitalisation stocks with high dividend yields.

3. Market value of a security is:

A. The current price of that security.

B. The intrinsic value of that security.

C. The fundamental value of that security.

Answer 1

Ans. 1- B (Equal Weighted Price Series)

In Price weighted series the stocks with high prices are given more weight whereas in market capitalization weighted series the stocks with the higher values of total of their outstanding shares are given more weight.

In equal weighted price series, all the companies be a large company or a smaller one, are given equal weight.

Ans 2- C (An index which consists of large market capitalization stocks with high dividend yields)

Style index basically provide a benchmark for actively managed funds based on a particular style. The style of stock could be like a regular income, growth rate or value etc. These kind of indices are designed by fund managers to make it separate from fundamentally traded indices.

Ans 3 - A ( The current price of the security)

The market value of a security is determined by the current price of a security which is basically determined by the demand and supply forces in the market.