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Economics Chapter 2: Understanding Indexes

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Questions and Answers

What does an index primarily measure?

Price movements of individual securities
Creditworthiness of a company
Yield of a particular investment
Changes in the economy or specific areas (correct)

What is the primary purpose of a stock index?

To evaluate the creditworthiness of companies
To measure inflation
To provide a benchmark for portfolio performance (correct)
To predict stock prices

What is expressed in terms of a change from a base value?

The stock price
The index value (correct)
The interest rate
The GDP

What is more important than the actual numeric value of an index?

The percentage change (B) Signup and view all the answers

What do broad indices aim to capture?

The overall behaviour of the equity market (B) Signup and view all the answers

What do managed portfolios use a stock index for?

To measure their performance (C) Signup and view all the answers

What is the primary function of an index in the financial markets?

To measure changes in the economy or a specific market (D) Signup and view all the answers

What is a key characteristic of financial indices?

They have their own calculation methodology (A) Signup and view all the answers

What does a stock index provide information about?

The average share price movement in the market (A) Signup and view all the answers

What is a stock index used as in managed portfolios?

A benchmark for performance evaluation (D) Signup and view all the answers

What is the purpose of a broad index?

To capture the overall behavior of the equity market (C) Signup and view all the answers

What is a common use of financial indices?

To measure the price movement of financial securities (A) Signup and view all the answers

What is a key aspect of an index's base value?

It can be based on the previous day or many years in the past (A) Signup and view all the answers

What is true about the percentage change of an index?

It is more important than the actual numeric value (C) Signup and view all the answers

What do stock indices primarily track?

The average price movement of stocks (B) Signup and view all the answers

What is an index's role in a portfolio's performance evaluation?

It is used as a benchmark for performance evaluation (C) Signup and view all the answers

What is a characteristic of financial indices in general?

They represent a particular market or portion of a market (D) Signup and view all the answers

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