CFA Practice Question

CFA Practice Question

Which of the following is not a use of security market indexes?

I. Indexes are used to compute rates of return, which are used as a benchmark to judge the performance of individual portfolios.
II. Indexes are used to develop an index portfolio in order to invest in the performance of the index.
III. Indexes are used to perform analyses of factors that influence aggregate security price movements and the relationship between the movements of major markets.
A. I and II.
B. II and III.
C. None of them.
Explanation: Both individual and institutional investors use indexes. Indexes allow investors to invest in the index, thereby replicating the performance of the index. Indexes also facilitate many types of analysis performed by both fundamental and technical analysts. Indexes also provide a measure of relative performance.

Besides: Indexes can be used to measure the systematic risk of a market.
"Technicians" use indexes to plot and analyze price and volume series on the assumption that past price changes can be used to predict future price movements.

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