- CFA Exams
- 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
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
Security | Price (Beginning) | Price (End) | Total Dividends
A | 5 | 6 | 1
B | 8 | 7 | 0
C | 10 | 15 | 2
The price return of the index is ______.
A. 19.2%
B. 18.8%
C. 32.5%
Explanation: The price return of A: (6-5) / 5 = 20%. The price return of B: (7-8) / 8 = -12.5%. The price return of C: (15 - 10)/10 = 50%. Since the index is equally weighted, the price of the index is (1/3) 20% + (1/3) (-12.5%) + (1/3) 50% = 19.2%.
User Contributed Comments 7
| User | Comment |
|---|---|
| smit0745 | guess you don't use the price adjusted for dividends on price return |
| akils | none of the indices consider dividend income, except for the "Total return index". |
| iankip58 | That dividend is a curve ball |
| farhan92 | or a doosra if you're into your cricket. |
| tomalot | No-one is into cricket. |
| ascruggs92 | farhan92, if your name didn't give it away that you're Indian, that cricket comment did. |
| rojaslav | tomalot hahah |