Which of the Following Statements About a Stock Index Is

question 4

Multiple Choice

Which of the following statements about a stock index is INCORRECT?

• A) A stock index is a hypothetical portfolio formed according to some criteria or rules.
• B) A stock index can be sold short.
• C) A stock index gives a quick sense of the performances of the market or a sector of the economy.
• D) A stock index provides a benchmark against which performance of fund managers are measured.
• E) A stock index can be used for creation of derivative products.

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Definitions:

Investment Opportunity

A situation or option through which an investor can potentially increase their wealth by allocating resources in a way that generates returns.

Margin

Net operating income divided by sales.

Contribution Margin Ratio

The percentage of each sale that contributes to covering fixed costs, calculated as contribution margin divided by sales revenue.

Fixed Expenses

Expenditures that stay unchanged despite differences in the volume of production or sales, covering items like rental fees, payroll, and coverage costs.