Equity Investments - Equity Investments Section 1
21. Which of the following is least likely true with regards to security market indices?
- Option : C
- Explanation : Most major indices are reconstituted periodically.
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- Option : C
- Explanation : 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.
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| 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:
- Option :
- Explanation : 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
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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:
- Option : B
- Explanation : The price return of the index is (28,950,000 - 35,250,000) / 35,250,000 = -17.87%.
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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:
- Option : A
- Explanation : 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%.
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