- CFA Exams
- CFA Level I Exam
- Study Session 12. Equity Investments (1)
- Reading 37. Security Market Indices
- Subject 2. Index Construction and Management
CFA Practice Question
An analyst is creating a new stock market index that is not affected by stock splits. The index the analyst is least likely to develop is ______.
A. price-weighted
B. value-weighted
C. unweighted
Explanation: A price-weighted index, such as the Dow Jones Industrial Average, requires adjustment for stock splits. It is computed by summing the prices of individual stocks and dividing by a divisor that is adjusted for stock splits, such that the index value is the same before and after the split.
User Contributed Comments 2
| User | Comment |
|---|---|
| merc10112 | "LEAST likely to develop".. am I just reading this wrong or should it be "MOST Likely to develop"? The answer explanation says the type of index that is not affected by a stock split is a Price-Weighted Index. Is this just wrong? |
| VMota | He is LEAST likely to develop a price-weighted index, because it IS affected by stock splits. |