Equity Investments - Equity Investments Section 1

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31. The second major question to address when constructing an index is most likely:

  • Option : C
  • Explanation : The first major question to address is what is the target market? The second major question is what securities to select from the target market?
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32. Analyst 1: Objective or mechanical rules are often used to determine the constituent securities of most indices.
Analyst 2: An index represents a list of securities and not a portfolio of actual securities.

Which analyst’s statement is most likely correct?

  • Option : C
  • Explanation : Both statements are correct.
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33. The index weighting method that requires adjustment to the divisor after a stock split is:

  • Option : A
  • Explanation : The index weighting method that requires an adjustment to the divisor after a stock split is the price weighing method.
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34. Which of the index weighting methods leads to indices that have a value tilt?

  • Option : B
  • Explanation : Fundamental weighting leads to indices that have a value tilt.
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35. The index weighting that has a momentum effect is most likely to be:

  • Option : C
  • Explanation : Market capitalization weighted indices generally will have a momentum “effect”.
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