NISM Certifications · NISM-Series-VIII: Equity Derivatives · Understanding Index
In a free-float market capitalisation weighted index, the weight of a company in the index depends mainly on which of the following?
Weight in a free-float market capitalisation weighted index depends on the market price multiplied by the number of shares available for public trading. Promoter and other locked-in holdings are excluded, so only tradable shares count towards the company's influence on the index.
- AMarket price of the share multiplied by the number of shares available for public tradingCorrect
- BFace value of the share multiplied by total issued shares
- CBook value per share of the company
- DNumber of shares held by promoters
Explanation
Free-float market capitalisation equals share price multiplied by the shares readily available for trading, excluding promoter and other locked-in holdings. Using total issued shares would give full market capitalisation, not free-float. Face value and book value do not drive weights in this method.
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