Stock Market Indices

8 questions

1. 1. Suppose that the Dow Jones Industrial Average is 10,667.39 and the divisor is 0.127525. General Motors (GM), a Dow component stock priced at USD 20.07, declares a special, capital restructuring dividend of USD 0.50. Assume that GM opens the next day unchanged at USD 19.57 (that is, 20.07 minus the special dividend of USD 0.50). Which of the following is true?
   The divisor changes, but the index remains unchanged.The index changes, but the divisor remains unchanged.Both the index and the divisor change.
2. 2. The S&P 500 is an example of which of the following?
   Price-weighted indexMarket cap-weighted indexEqually-weighted index
3. 3. Company A is a component stock of a market cap-weighted index. Which of the following events would not require an adjustment to the index divisor?
   Stock split by Company ACompany A implements a share repurchase schemeReplacement of Company A in the index by Company B
4. 4. Shown below are the levels (at the time of writing) of the three most-widely quoted US stock market indexes.

   Dow: 12,966.94. NASDAQ: 2,528.82. S&P 500: 1,484.78.

   What do these index values mean?

   They represent the sum of the share prices of the component stocks in each of the indexes.The share prices of the companies in the Dow have outperformed those in the other indexes.None of the above
5. 5. Identify which of the following indexes would assign more weight to a high-priced stock than a lower-priced one.
   DJIAFTSE 100S&P 500
6. 6. Identify whether each of the following events would NOT require an adjustment to the divisor of a market cap-weighted index.
   A spin-off company is added to the index, while another company is removed to keep the number of stocks fixed.A spin-off company is added to the index, but no company is removed.A new company (not a spin-off) is added to the index, but no company is removed.
7. 7. A stock market index consists of the following ten stocks:

   

   The index value is 657.53, given a divisor of 0.1095. What type of stock index is this?

   Market cap-weighted indexFloat-adjusted indexPrice-weighted index
8. 8. Which of the following types of index provides the best evaluation of the full yield of an index?
   Price-weighted indexMarket-cap weighted indexTotal return index