Question

Which of the following statements is incorrect?

Select one:

a. The performance of an equal-weighted index represents the performance of a portfolio in which the same amount of money is invested in the shares of each index component.

b. A price-weighted index is biased towards the highest-priced share

c. The performance of a price-weighted index represents the performance of a portfolio that simply bought and held one share of each index component.

d. The performance of a value-weighted index would represent the performance of a portfolio that owns all the outstanding shares of each index component.

e. In a value-weighted index, a 10 percent share price increase for a large-cap company would affect the index less than would a 10 percent share price increase for a smaller company.

Answer 1

In a value weighted index 10% increase in value for a large capitalised company will be affecting the value of the index more than the 10% increase in the value of a small capitalised company because value weighted index is based upon the market capitalisation of the company.

All the other options are true.

Correct answer is option (E) In value weighted index 10% share price increase for a large cap company would affect the value less than 10% share price increase for smaller company..