Question: There is a value-weighted market index composed of the following four stocks:
Stock 1 has a price of $43 and a market value of $102 million.
Stock 2 has a price of $85 and a market value of $74 million.
Stock 3 has a price of $5 and a market value of $218 million.
Stock 4 has a price of $27 and a market value of $196 million.
If the price of stock 3 increases to $6, by how much would the index change?
Select an Answer: The index would increase by 4.7%. The index would decrease by 7.4%. The index would increase by 2.5%. The index would decrease by 1.2%. The index would increase by 7.4%.
Rationale:
The numerator of this index would be equal to the sum of the market values of the four stocks.
Before the price increase in stock 3, the numerator would have a value of 590 million. After the price increase, the numerator would have a value of 633.6 million [(6/5)(218) + 102 + 74 + 196].
Regardless of what the divisor is, this will result in a 7.4% increase in the index (633.6/590 − 1).
2025-07-09
Question: The Brinson Partner GSMI series:
Select an Answer: measures the performance of over 8,000 stocks and bonds traded in the United States. As such, it is the second broadest (after the ML-WCMI) index of American securities.
measures the performance of a wide variety of domestic and foreign stocks and bonds, and is thereby the most diversified benchmark available. It comes closest to representing market portfolio of risky assets. measures the performance of over 4,000 stocks on every significant secondary market in the European Union. As such, it is the broadest European equity index in existence. measures the performance of over 3,000 bonds of every type and risk level in the United States. As such, it is the broadest U.S. fixed-income index in existence. measures the performance of a wide variety of domestic and foreign stocks and bonds, and is among the most diversified benchmarks available.
measures the performance of over 10,000 stocks on every significant secondary market in the United States. As such, it is the broadest U.S. equity index in existence.
Rationale:
The construction of the Brinson Partner Global Security Market Index (GSMI) uses optimization techniques to identify the portfolio mix of global asset classes that matches the risk level of a typical U.S. pension plan. The index is balanced monthly. Because it includes both U.S. and foreign stocks and bonds, it is the most diversified benchmark available, and comes closest to the market portfolio of risky assets referred to by the CAPM.
2025-07-08
Question: The assumption that stock prices fully reflect all information, including public and private information, describes which of the following?
Select an Answer: weak-form Efficient Market Hypothesis (EMH) efficient frontier theory
semistrong-form Efficient Market Hypothesis (EMH) strong-form Efficient Market Hypothesis (EMH) leading indicators
Rationale:
The strong-form EMH assumes that stock prices fully reflect all information, both from public as well as private sources. Additionally, it assumes perfect markets in which all information is cost-free and available to everyone at the same time. The weak-form EMH asserts that stock prices reflect all market information, while the semistrong-form EMH says that stock prices react rapidly to all public information including market and nonmarket data.
2025-07-07
Question: Which of the following is an unweighted stock series?
Select an Answer: Value Line Averages Financial Times Ordinary Share Index Series typically computed for an academic study. All of these answers are correct.
Rationale:
An unweighted stock series can be arithmetic-averages, such as series typically computed for academic studies, or geometric-averages, such as Value Line Averages and Financial Times Ordinary Share Index.
2025-07-06
Question: Which of the following is not a sample member weighting method?
Select an Answer: equal weighting value-weighting market-weighting price-weighting
Rationale:
Market-weighting is not a real term. Price weighting is an arithmetic average of current prices. Value-weighting involves deriving the initial total market value of securities in the index, assigning that result as a base index value of 100, for example, and then updating the index value based on changes in the total market value of securities in the index. In an equally-weighted (or unweighted) index, all stocks carry equal weight regardless of their price or market value.
