Question

Explain the difference between Price-Weighted Index and Value-Weighted Index.

Explain the difference between Price-Weighted Index and Value-Weighted Index.

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Answer #1

ANS : Price-weighted Index is an index where the member companies are weighted in propoortion to their price per share, rather than the number of shares outstanding, market capitalisation etc. It gives greater weight to stock with higher prices in terms of  their contribution to the index value & the change in the Index.

Value-weighted Index is also called Capitalisation-weighted Index. It is a Index where components are weighted according to the total market value of their outstanding shares.

In value-weighted Index, ABC would have more impact in the movement of index, But in case of price-weighted it would have less impact as its price is lower.

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