Stock A has 10 million shares issued and Stock B has 5 million shares issued.What is their relative weighting if both stocks are represented in the S&P 500?
A)Equal-weightings, like all S&P 500 stocks
B)B has twice the weighting, to account for having fewer shares
C)A has twice the weighting, to account for having more shares
D)They are weighted according to their expected performance

Question

Quizplus · Accepted Answer

The S&P 500 is market-cap weighted, meaning the larger the market capitalization, the greater the weighting in the index. Market capitalization is calculated by multiplying the number of shares outstanding by the current stock price. Since Stock A has a larger number of shares outstanding, it would have twice the weighting compared to Stock B, even if both stocks have the same market capitalization. Therefore, Choice C is the correct answer.

Stock a Has 10 Million Shares Issued and Stock B