Stock A has 10 million shares outstanding and stock B has 5 million shares outstanding.Both stocks sell for $10 a share.What is their relative weighting if both stocks are represented in the S&P 500?
A) They have equal weighting, 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 relative weighting of stocks in the S&P 500 is determined by market capitalization, which is the number of outstanding shares multiplied by the stock price. Therefore, stock A has a market capitalization of 10 million x $10 = $100 million, while stock B has a market capitalization of 5 million x $10 = $50 million. Since stock A has a higher market capitalization, it will have a higher weighting in the S&P 500. Specifically, it will have twice the weighting of stock B because it has twice the market capitalization.

Stock a Has 10 Million Shares Outstanding and Stock B