1. Analyst 1: A security market index represents the level of risk in the market. Analyst 2: A security market index represents the security market, market segment or asset class. Which analyst’s statement is most likely correct?

A. Analyst 1.
B. Analyst 2.
C. Neither.


2. Index P is a price return index. Index T is a total return index. Both have a starting value of 1000. Both have the same underlying securities and weighting system. Six months after inception the two index values will most likely be equal if:

A. the indices have not been rebalanced.
B. the indices have not been reconstituted.
C. the constituent securities do not pay dividends or interest.


3. What does reconstitution of a security market index help reduce?

A. Portfolio turnover.
B. Market-capitalization weighting of the index.
C. The likelihood that the index includes securities that are not representative of the target market.


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