Deck 13: Market Indexes

Question 1

A(n) _____ index is composed of a single share of each of the index components.

A) average cost
B) composite
C) price-weighted
D) neutral

Answer 1

price-weighted

Question 2

The DJIA is comprised of one share each of _____ different stocks.

A) 10
B) 20
C) 30
D) 40

Answer 2

30

Question 3

To deal with problems associated with artificial price changes such as stock splits, a(n) _____ is used.

A) divisor
B) different weight
C) new stock price
D) weighted value

Answer 3

divisor

Question 4

If there were 20 stocks in an equal weighted index, _____ of the performance of each company would be used.

A) 0.2
B) 1/20
C) 0.1
D) 1/10

Question 5

Capitalization weighting or value weighting weights components by _____ rather than by the value of a share.

A) net income
B) dividend yield
C) capital expenditure
D) value of shares outstanding

Question 6

There are _____ principal Dow Jones averages.

A) two
B) four
C) six
D) eight

Question 7

One shortcoming of the DJIA is its

A) small number of components.
B) inclusion of small firms.
C) high index.
D) all of the above.

Question 8

Which of the following is not included in the Dow Jones Composite Index?

A) DJIA
B) DJTA
C) DJUA
D) S&P 500

Question 9

The S&P 500 is a _____ index.

A) price weighted
B) value weighted
C) equal weighted
D) utility

Question 10

The New York Stock Exchange Composite index consists of _____ stocks found on the NYSE.

A) 100
B) 200
C) 500
D) all

Question 11

Price weighting carries a bias against _____ stocks because of a company's actions regarding an optimum trading range for the stock price.

A) growth
B) penny
C) blue chip
D) utility

Question 12

A company with 100,000 shares outstanding worth $10 each would add _____ to the base value of a value-weighted index.

A) $10
B) 100,000 shares
C) $1,000,000
D) $100,000

Question 13

In a price-weighted index changes in the price of a company's stock with _____ would tend to influence the index _____ than changes in a _____ .

A) higher capitalization; less; growth stock
B) a higher stock price; more; stock of a company with a lower price.
C) a higher stock price; less; stock of a company with a lower price.
D) a lower P/E; more; stock's price.

Question 14

In a price-weighted index, a(n) _____ stock price has less influence than a stock _____ .

A) low; with a high price
B) low; with a lower price
C) increasing; with a decreasing price
D) none of the above

Question 15

In a price-weighted index a _____ is used to adjust the value of the portfolio for stock splits.

A) multiple
B) aggregator
C) divisor
D) wrench

Question 16

If the Dow Jones Industrial Average increases from 8,500 to 10,000 in a year, an investor who owns 30 shares of the 30 companies in the Dow has earned what total annual return on their stock portfolio?

A) 1.17%
B) 17.6%
C) 85%
D) The correct answer cannot be calculated from this price-weighted average.

Question 17

The Dow Jones Industrial Index, a price-weighted index, does not consider _____ in the index?

A) dividends
B) stock splits
C) changes in stock prices
D) all of the above

Question 18

In an equal-weighted index the performance of each stock would be represented in the index

A) based on the price of the stock.
B) equally.
C) proportional to the market capitalization of the company.
D) significantly.

Question 19

Capitalization weighting of stock indices means that the weight of a company in the index is related to:

A) the number of shares issued.
B) the size of equity capital relative to assets.
C) the total stock market value of the company.
D) the book value of the company's common equity.

Question 20

An index begins with a base, usually:

A) 100
B) zero
C) at the beginning.
D) when the company was founded.

Question 21

Table 13-1
$\begin{array}{|l|l|l|l|l|l|}\hline \text{Year }& 1998 & 1999 & 2000 & 2001 & 2002 \\\hline \text{Amount} & 1323 & 1450 & 1480 & 1500 & 1512 \\\hline \text{Index }& 100 & 109.6 & 111.9 & 113.4 & 114.3 \\\hline\end{array}$

With reference to Table 13-1, what is the base year, of the index ?

A) 1998
B) 1999
C) 2002
D) it cannot be determined

Question 22

Table 13-1
$\begin{array}{|l|l|l|l|l|l|}\hline \text{Year}& 1998 & 1999 & 2000 & 2001 & 2002 \\\hline \text{ Amount} & 1323 & 1450 & 1480 & 1500 & 1512 \\\hline \text{ Index} & 100 & 109.6 & 111.9 & 113.4 & 114.3 \\\hline\end{array}$

With reference to Table 13-1, if year 2000 is the base year, the index for 2001 is:

A) 1490
B) 100
C) 101.35
D) 98.67

Question 23

Table 13-1
$\begin{array}{|l|l|l|l|l|l|}\hline\text{ Year }& 1998 & 1999 & 2000 & 2001 & 2002 \\\hline\text{ Amount} & 1323 & 1450 & 1480 & 1500 & 1512 \\\hline \text{Index} & 100 & 109.6 & 111.9 & 113.4 & 114.3 \\\hline\end{array}$

With reference to Table 13-1, what is the average annual growth rate of the index from 1998 to 2001?

A) 3.4%
B) 3.2%
C) 4.3%
D) 4.5%

Question 24

The S&P 500 Composite Index is a _____ -weighted index with a base value of _____ , beginning in 1941-43.

A) value; 100
B) price; 100
C) value; 10
D) equal; 10

Question 25

The Russell 3000 represents_____ companies compared to companies in the Russell 2000.

A) smaller
B) more high tech
C) larger
D) fewer

Question 26

To the investing public the most familiar stock market indicators are

A) the Dow Jones averages
B) the Standard & Poor's averages
C) the Russell averages
D) the NYSE averages

Question 27

Of the 30 stocks in the Dow Jones Industrial Average in 1928, the only company still in the index is

A) General Motors
B) General Electric
C) General Dynamics
D) General Tire

Question 28

A stock index should not be used as a benchmark against which performance is compared.

Question 29

The Dow Jones Industrial Average is price-weighted.

Question 30

If a DJIA stock splits 3 for 1, the index divisor will decline.

Question 31

There is a bias against growth stocks in both a price weighted and a capitalization-weighted index.

Question 32

The DJIA assumes uniform receipt of dividends paid on the 30 stocks in the index.

Question 33

Capitalization weighting is also called value weighting.

Question 34

Once a company is removed from the DJIA, it cannot return to the index at a later date.

Question 35

The Russell 3000 index is used mostly by people interested in large capitalization firms.

Question 36

The Dow Jones Composite is the same as the "65 stocks"index.

Question 37

Dow Jones does not compute a bond index.

Question 38

The FT-SE 100 index tracks the stock performance of the major companies of Japan.

Question 39

Indexes measure the absolute change in a data series.

Question 40

To best measure the total return on a portfolio of stocks, dividends should be included.

Question 41

The DJIA divisor attempts to adjust this price-weighted average for dividends.

Question 42

An annual increase in the Dow Jones Industrial Average from 9,000 to 10,000 represents a 10% gain in the Dow.

Question 43

An equal-weighted stock index weighs the performance of each stock equally.

Question 44

With value weighting, large company performance dominates changes in the S&P 500 Composite index.

Question 45

Over time the DJIA divisor has decreased.

Question 46

The S&P 500 Composite index measures the performance of about three-fourths of the companies in the U.S..

Question 47

The value-weighted indexes have an adjustment divisor which attempts to reflect varied-size companies entering and exiting, new share issue, and corporate share repurchases, all of which impacts the total market capitalization of the companies in the index.

Question 48

An investor, who earned 15% in a "small cap"stock last year is more likely to compare the stock's return to the Russell 2000 than the Russell 3000.

Question 49

All the thirty companies in the DJIA have inventory in their balance sheet.

Question 50

An increase in the DJIA from 8000 to 9000 in two years would represent an average annual rate of return of 6.1%.

Question 51

A company listed on the Hang Seng index is more likely to be a Japanese company than one listed on the Nikkei 225.

Question 52

The Dow Jones Composite includes thirty DJIA companies, twenty transportation companies, and fifteenpublic utility companies.

Question 53

The S&P 500 index contains the 500 largest U.S. companies.

Question 54

The S&P 500 index contains the world's 500 largest companies.