CFA Level I · CFA Level I Exam · Benchmarking Returns
A market-capitalization-weighted index holds two shares. Share X has a market value of 600 million and returned 5%. Share Y has a market value of 400 million and returned 15%. The index return is closest to:
The index return is 9.0%. Market-capitalization weights are 60% for Share X and 40% for Share Y, so the return is 0.6 times 5% plus 0.4 times 15%. Equal weighting would give 10%, and reversing the weights would give 11%.
- A9.0%Correct
- B10.0%
- C11.0%
Explanation
Weights are 60% and 40%. Return = 0.6×5% + 0.4×15% = 3% + 6% = 9.0%. The 10.0% option uses equal weights; the 11.0% option reverses the weights.
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