Which index is price-weighted?

Which index is price-weighted?

• A. NASDAQ Composite
• B. Dow Jones Industrial Average (DJIA)
• C. S&P 500
• D. FTSE 100

Answer: (B)

In a price-weighted index, the influence of each stock on the index is determined by its price per share—the higher the price, the more it moves the index, regardless of the company's overall size. The Dow Jones Industrial Average is the classic example of this approach: it sums the prices of its 30 constituent stocks and then divides by a divisor (adjusted for splits and other actions) to maintain continuity over time. The other indices use different methods. The NASDAQ Composite is weighted by market capitalization, so larger companies by value have more impact. The S&P 500 is also market-cap weighted. The FTSE 100 is likewise weighted by free-float market capitalization. Therefore, among these options, the Dow Jones Industrial Average is the price-weighted one.

In a price-weighted index, the influence of each stock on the index is determined by its price per share—the higher the price, the more it moves the index, regardless of the company's overall size. The Dow Jones Industrial Average is the classic example of this approach: it sums the prices of its 30 constituent stocks and then divides by a divisor (adjusted for splits and other actions) to maintain continuity over time.

The other indices use different methods. The NASDAQ Composite is weighted by market capitalization, so larger companies by value have more impact. The S&P 500 is also market-cap weighted. The FTSE 100 is likewise weighted by free-float market capitalization. Therefore, among these options, the Dow Jones Industrial Average is the price-weighted one.