CFAI 2024 EQ M2

1. A security market index represents the:

• 1. risk of a security market

• 1. security market as a whole

• 1. security market, market segment, or asset class

1. One month after inception, the price return version and total return version of a single index (consisting of identical securities and weights) will be equal if:

• 1. market prices have not changed

• 1. capital gains are offset by capital losses

• 1. the securities do not pay dividends or interest

1. Security market indexes are:

• 1. constructed and managed like a portfolio of securities

• 1. simple interchangeable tools for measuring the returns of different asset classes

• 1. valued on a regular basis using the actual market prices of the constituent securities

1. When creating a security market index, an index provider must first determine the:

• 1. target market

• 1. appropriate weighting method

• 1. number of constituent securities

When creating a security market index, the target market:

• 1. determines the investment universe

• 1. is usually a broadly defined asset class

• 1. determines the number of securities to be included in the index

14. Which of the following index weighting methods requires an adjustment to the divisor after a stock split?

• 1. Price weighting

• 1. Fundamental weighting

• 1. Market-capitalization weighting

A float-adjusted market-capitalization-weighted index weights each of its constituent securities by its price and:

• 1. its trading volume

• 1. the number of its shares outstanding

• 1. the number of its shares available to the investing public

Rebalancing an index is the process of periodically adjusting the constituent:

• 1. securities’ weights to optimize investment performance

• 1. securities to maintain consistency with the target market

• 1. securities’ weights to maintain consistency with the index’s weighting

     method

Security market indexes are used as:

• 1. measures of investment returns

• 1. proxies to measure unsystematic risk

• 1. benchmark for evaluating portfolio performanceproxies for specific asset classes in asset allocation models

Which of the following is an example of a style index? An index based on:

• 1. geography

• 1. economic sector

• 1. market capitalization