Equity Investments MCQ - Equity Investments Section 1

21 Which of the following is least likely true with regards to security market indices?

Most major indices are reconstituted periodically.

22 Index P is a price return index. Index T is a total return index. Both have a starting value of 1000. Both have the same underlying securities and weighting system. Six months after inception the two index values will most likely be equal if:

Income generated over time by underlying securities in terms of dividend or interest creates a difference between a price return index and a total return index consisting of identical securities and weights. If the securities in the index do not generate income, both indices will be identical in value.

23 An analyst gathers the following information for KSE3 index comprised of HBL, FFCL and EFOODS. This is a price-weighted index.

Security	Beginning of periodprice (Rs.)	End of period price(Rs.)	Total Dividend (Rs.)
HBL	148	153	8
FFCL	104	110	5
EFOODS	110	90	4

The price return of the index is closest to:

The price return of the price-weighted index is the percentage change in price of the index: (353-362) / 362 = - 2.49%.

Security price	Beginning of period	End of period price
HBL	148	153
FFCL	104	110
EFOODS	110	90
TOTAL	362	353

24 A market-capitalization-weighted index consists of securities ABC, DEF and GHI:

Security	Beginning of Period Price	End of Period Price	Dividends per share	Share Outstanding
ABC	1,500	1,700	10	6,000
DEF	2,500	1,500	15	8,500
GHI	500	600	10	10,000

The price return of the index is closest to:

The price return of the index is (28,950,000 - 35,250,000) / 35,250,000 = -17.87%.

25 An analyst gathers the following data for a price-weighted index:

	Beginning of period		End of period
Security	Price	$ Shares	Price$	Shares
A	10	100	15	100
B	40	150	38	150
B	40	150	38	150

The price return of the index over the period is closest to:

View Explanation
Comment
1 Comment(s)

The sum of prices at the beginning of the period is 66; the sum at the end of the period is 73. Regardless of the divisor, the price return is 73 − 1 = 0.1061 or $10.61%.