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For which index is your average return greater, price-weighted or equal-weighted?  Why?  (Hint:  a complete answer will include a...

For which index is your average return greater, price-weighted or equal-weighted?  Why?  (Hint:  a complete answer will include a very specific discussion of your numbers.  You may want to support your assertions with calculations.)

For which index is your average return greater, price-weighted or market-value-weighted?  Why?  (Hint:  a complete answer will include a very specific discussion of your numbers.  You may want to support your assertions with calculations.)

For which index is your average return greater, equal-weighted or market-value-weighted?  Why?  (Hint:  a complete answer will include a very specific discussion of your numbers.  You may want to support your assertions with calculations.)

Solutions

Expert Solution

S&P 500 index is framed after considering the data of the largest 500 companies according to the capitalization weighting method floating freely in the market. In this method of calculation both the number of shares and price of each stock matters.

Further, Dow Jones industrial average is calculated after considering the 30 largest companies in accordance of the method of weighting price. This method considers only the stock price in its calculation. So, the weightage is allotted to the price of the stock only.

The NASDAQ composite includes the data of all the listed companies listed in the stock market. So, it had a wider scope.

These index can influence the decision of investor but none of them can provide the accurate return as calculated by the investor.

It is recommended to follow the NASDAQ stock market as it had a wider scope and portrays a true picture on its index.

jeff jeffy answered 1 year ago
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