Index

Price-Weighted Index, Cap-Weighted Index

Price-Weighted Index

A Price-Weighted Index is based on summing the prices of each stock included, then dividing by a divisor that gets adjusted for stock splits when appropriate. Stocks which have a high price have the heaviest weighting in this type of index.

Capitalization-Weighted Index

A Capitalization-Weighted Index is based on summing the capitalization of each individual stock included, then dividing by a divisor that gets adjusted for additional issues of stock. Stocks with the largest capitalization have the heaviest weighting in this type of index.

Divisor

A mathematical quantity used to compute an index. It is initially an arbitrary number that reduces the index value to a small, workable number. Thereafter, the divisor is adjusted for stock splits (price-weighted index) or additional issues of stock (capitalization-weighted index).

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