Security Market Indexes practice questions

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Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.

Review signal

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Equity Investments

Security Market Indexes

An equity index begins the month at 2,500 and ends at 2,625. During the month, constituent securities paid cash distributions equivalent to 40 index points. The index's total return is closest to:

Equity Investments

Security Market Indexes

A price-weighted index initially contains three stocks priced at 60, 90, and 150, with divisor 3. The 150 stock then has a 3-for-1 split, and the divisor is adjusted immediately. At the next close, prices are 63, 87, and 55. The index return from immediately before the split to the next close is closest to:

Equity Investments

Security Market Indexes

A float-adjusted market-capitalization-weighted index has three stocks. Initial data are: A: price 20, shares 10 million, float 80%; B: price 40, shares 5 million, float 60%; C: price 30, shares 8 million, float 25%. End-of-period prices are 22, 39, and 33. The index return is closest to:

Equity Investments

Security Market Indexes

An index committee annually updates the list of eligible securities based on market capitalization and liquidity, and quarterly resets constituent weights to target weights without changing constituents. The annual process and quarterly process are best described, respectively, as:

Equity Investments

Security Market Indexes

A security market index is best described as:

Equity Investments

Security Market Indexes

Compared with a price return index, a total return index most likely includes:

Equity Investments

Security Market Indexes

An index provider removes companies that no longer meet eligibility rules and adds newly eligible companies. This process is best described as:

Equity Investments

Security Market Indexes

An index begins the period at 1,200 and ends at 1,260. Dividends are equivalent to 18 index points. The total return is closest to:

Equity Investments

Security Market Indexes

Three stocks in a price-weighted index have prices of 20, 30, and 50 at the start of the period and 22, 27, and 55 at the end. Assuming no divisor change, the price-weighted index return is closest to:

Equity Investments

Security Market Indexes

Stock A has 10 million shares and falls from 20 to 18. Stock B has 1 million share and rises from 30 to 33. The market-capitalization-weighted index return for these two stocks is closest to:

Equity Investments

Security Market Indexes

A two-stock float-adjusted index has Stock A with 10 million shares, an 80% float factor, and price from 40 to 44. Stock B has 20 million shares, a 50% float factor, and price from 30 to 27. The float-adjusted market-capitalization-weighted return is closest to:

Equity Investments

Security Market Indexes

A price-weighted index has an index level of 100 and a divisor of 2.00 before a 2-for-1 split. Before the split, constituent prices are 40, 60, and 100. Immediately after the split, the third stock's price is 50. The new divisor is closest to:

Equity Investments

Security Market Indexes

A fundamentally weighted equity index most likely weights constituents by:

Equity Investments

Security Market Indexes

A security market index is least likely to be used to:

Equity Investments

Security Market Indexes

In constructing a float-adjusted market-capitalization-weighted index, the shares most likely excluded from a constituent's index weight are shares:

Equity Investments

Security Market Indexes

The index weighting method that most likely requires the most frequent rebalancing to maintain its target weights is:

Equity Investments

Security Market Indexes

A price return index begins the year at 800.00 and ends the year at 856.00. During the year, constituent securities paid dividends equal to 12.00 index points. The index's price return for the year is closest to:

Equity Investments

Security Market Indexes

An equal-weighted index contains three stocks. Over the period, Stock X's price moves from USD 25.00 to USD 27.50, Stock Y's from USD 50.00 to USD 48.00, and Stock Z's from USD 40.00 to USD 42.40. No dividends are paid. The equal-weighted index return for the period is closest to:

Equity Investments

Security Market Indexes

A market-capitalization-weighted index has three constituents: Stock A with 2 million shares outstanding at USD 50.00, Stock B with 12 million shares outstanding at USD 25.00, and Stock C with 5 million shares outstanding at USD 20.00. Stock B's weight in the index is closest to:

Equity Investments

Security Market Indexes

A market-capitalization-weighted index contains two stocks. Stock A has 10 million shares outstanding; its price moves from USD 20.00 to USD 21.00 and it pays a dividend of USD 0.50 per share. Stock B has 2 million shares outstanding; its price moves from USD 50.00 to USD 51.00 and it pays a dividend of USD 1.00 per share. The index's total return for the period is closest to: