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:

Prepared

The state of being ready and well-equipped for a particular task or situation.

Seemingly Contradictory

Appearing to be in opposition or inconsistency with each other, though often upon closer inspection they are not.

Analysis

The process of examining components or structure of something systematically to understand it better or to draw conclusions.

Communication

The process of transferring information, ideas, emotions, and intentions between two or more entities, typically through verbal, non-verbal, or written means.