- CFA Exams
- CFA Level I Exam
- Study Session 12. Equity Investments (1)
- Reading 37. Security Market Indices
- Subject 2. Index Construction and Management

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**CFA Practice Question**

Which of the following statements about unweighted indices is incorrect?

A. The Value Line Composite Index is an unweighted index.

B. Index movements are typically based on the geometric average of the percentage price changes for the stocks in the index.

C. These indices are useful in measuring situations where equal dollar amounts of each stock are held.

**Explanation:**Index movements are typically based on the arithmetic average of the percentage price changes of the stocks in the index.

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**User Contributed Comments**
2

User |
Comment |
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ml42085 |
Can someone explain this one? "Unweighted Price Indicator Series -Value Line Index. It is equally weighted geometric average of the performance of about 1,700 firms. -Financial Times. It also computes a geometric mean of the holding period returns." |

jpducros |
nl42085, this is a tricky question , just found that the Value line Composite index used to be calculated with a geometric average but apparently it has changed in 1988 to a value line Arithmetic average |