You Decide to Purchase an Equal Number of Shares of Firms

question 33

Multiple Choice

You decide to purchase an equal number of shares of firms to create a portfolio. If you wished to construct an index to track your portfolio performance your best match for your portfolio would be to construct a/an ________.

• A)value weighted index
• B)equal weighted index
• C)price weighted index
• D)bond price index

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Definitions:

Degree Of Total Leverage

A ratio that measures the sensitivity of a company's earnings per share to fluctuations in its operating income due to changes in its capital structure.

Financial Leverage

The use of borrowed funds to increase an investment's potential return, which also increases the risk of loss.

Operating Leverage

A measure of how sensitive a company's operating income is to changes in its revenue, indicating the proportion of fixed versus variable costs.

Financial Risk

The possibility of losing money on an investment or business venture due to various financial factors.