Which One of the Following Is the Primary Flaw of a Price-Weighted

question 59

Multiple Choice

Which one of the following is the primary flaw of a price-weighted index?

• A)Price-weighted indexes ignore stock splits which affect stock prices.
• B)The effect a company has on the index is dependent solely on the price per share.
• C)Only a small number of stocks can be included in a price-weighted index.
• D)If the number of shares outstanding of an index stock changes, the index divisor must be recomputed.
• E)The index can only be computed once the trading day is over.

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Definitions:

Convex Preferences

A set of consumer preferences that exhibit a specific property where mixtures of goods are preferred over singular extremes, displaying a curve outward towards the origin on a utility graph.

Weakly Convex

Describes a curve or set in geometry and mathematical functions that bulges outward less sharply than a perfectly convex shape, often applied in optimization problems.

Convex Preferences

A representation in economics of a consumer preference structure where a mix or combination of two goods is preferred over either of the two goods alone, indicating a desire for diversification.

Indifference Curves

A graphical representation of different bundles of goods between which a consumer is indifferent, showing the same level of satisfaction or utility for each point on the curve.