a.Explain the differences between a value weighted stock index and a price weighted stock index. b.Why is value weighted...
a.Explain the differences between a value weighted stock index and a price weighted stock index.
b.Why is value weighted often preferred?
c. Give an example of a value weighted index.
d. Give an example of a price weighted index
Homework Answers
a. A stock index consists of selective stocks based on it's market cap and value of the firm. These again differ with the weights. Those are value weighted and price weighted. Dow jones comes under price weighted while NASDAQ comes under value weighted. Difference in between these two are that the price weighted considers the share price of the stock and value weighted considers the market capitalization.
b. Value weighted is preferred because companies with large cap get's more significance than the companies with the smaller cap.
c. Value weighted index examples are NYSE, SENSEX.
d. Price weighted index examples are Nikkei 225.
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