Price-weighted index

What it means

An index in which each constituent’s weight is proportional to its share price.

The exam angle

A high-priced share dominates regardless of company size, and a split changes the weights without changing anything real. The Dow is the famous example.

Where it appears in the syllabus

• EquitiesCFA Level I · exam weight 11–14% · Market organisation, indexes, industry analysis, dividend models.

Related terms

• BetaThe sensitivity of an asset’s return to the market’s return — its share of systematic risk.
• Book valueThe accounting value of equity: assets less liabilities as reported.
• Capital asset pricing modelA model stating that an asset’s expected return equals the risk-free rate plus beta times the equity risk premium.
• Common shareAn ownership claim on a company’s residual cash flows and assets, normally carrying a vote and ranking last in…
• Cost of equityThe return equity holders require for bearing the residual risk of the business.
• Dividend discount modelValuing a share as the present value of its expected future dividends.