- CFA Exams
- 2021 CFA Level I Exam
- Study Session 12. Equity Investments (1)
- Reading 37. Security Market Indices
- Subject 1. Index Definition and Calculations of Value and Returns

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**CFA Practice Question**

Assume the following information about an equally-weighted index comprised of 3 stocks: A, B, and C.

A | 5 | 6 | 1

B | 8 | 7 | 0

C | 10 | 15 | 2

B. 18.8%

C. 32.5%

Security | Price (Beginning) | Price (End) | Total Dividends

A | 5 | 6 | 1

B | 8 | 7 | 0

C | 10 | 15 | 2

The total return of the index is ______.

A. 19.2%

B. 18.8%

C. 32.5%

Correct Answer: C

The price return of A: (6+1-5) / 5 = 40%. The price return of B: (7-8) / 8 = -12.5%. The price return of C: (15+ 2 - 10) / 10 = 70%. Since the index is equally weighted, the price of the index is (1/3) 40% + (1/3) (-12.5%) + (1/3) 70% = 32.5%.

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