Question

You decide to purchase an equal number of shares of stocks of firms to create a portfolio. If you wished to construct an index to track your portfolio performance your best match for your portfolio would be to construct a/an

A. value weighted index
B. equal weighted index
C. price weighted index
D. bond price index

Answer 1

The most suitable index to track a portfolio created by purchasing an equal number of shares from each firm is an equal weighted index.

Step-by-step explanation:

If you decide to purchase an equal number of shares of stocks of firms to create a portfolio, the best match for your portfolio to construct an index to track your portfolio performance would be an equal weighted index.

This type of index gives the same weight, or importance, to each stock in the portfolio regardless of the company's size or stock price. With an equal weighted index, each stock contributes proportionally to the index's overall return, which is aligned with the approach of buying an equal number of shares from each company.