NISM Certifications · NISM-Series-VIII: Equity Derivatives · Understanding Index
An index has two stocks. Stock A: price Rs 200, 10 crore total shares, 60% free float. Stock B: price Rs 100, 30 crore total shares, 40% free float. What is the weight of Stock A in the free-float market cap weighted index?
Stock A's weight is 50%. Its free-float capitalisation is 200 times 10 crore times 0.6, or Rs 1,200 crore, and Stock B's is 100 times 30 crore times 0.4, also Rs 1,200 crore. Each is half of the Rs 2,400 crore total.
- A62.5%Correct
- B50%
- C40%
- D25%
Explanation
Free-float cap of A = 200 x 10 crore x 0.6 = Rs 1,200 crore. For B = 100 x 30 crore x 0.4 = Rs 1,200 crore. Total is 2,400 crore, so A's weight is 50%. Using full market cap gives A = 2,000 and B = 3,000, so A = 40%, which is the wrong base.
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