NISM Certifications · NISM-Series-VIII: Equity Derivatives · Understanding Index
An index has three stocks with free-float market caps (in Rs crore) of A: 40,000, B: 35,000 and C: 25,000. Over a day A rises 2%, B falls 1% and C rises 4%. Assuming no change in the divisor and index weights proportional to market caps, what is the percentage change in the index?
The index rises 1.45%. Weighting each stock's move by its market cap gives gains of 800 and 1,000 crore and a loss of 350 crore, a net 1,450 crore on a total of 1,00,000 crore. A simple average would wrongly give 1.67%.
- A1.45%Correct
- B1.00%
- C1.67%
- D1.25%
Explanation
Total cap = 1,00,000. Change = 40,000x0.02 + 35,000x(-0.01) + 25,000x0.04 = 800 - 350 + 1,000 = 1,450. Percentage change = 1,450/1,00,000 = 1.45%. The 1.67% figure is the simple average of 2, -1 and 4 percent, ignoring weights.
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