Question

Which of the following statements is incorrect?
Select one:
a. A price-weighted index is biased towards the highest-priced share
b. 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.
c. The performance of a value-weighted index would represent the performance of a portfolio that owns all the outstanding shares of each index component.
d. The performance of a price-weighted index represents the performance of a portfolio that simply bought and held one share of each index component.
e. 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.

Answer 1

In value weighted index, weights are fixed according to the market capitalisation of the companies and 10% share price increase for large cap company will be affecting the index more than the 10% share increase for the small company.

All the other options are correct.

Correct answer will be option (b)In a value weighted index, 10% share price increase for large capital company will be affecting the index less than 10% share price increase for a small company.