1. Index Definition and Calculations of Value and Returns

a. describe a security market index;

b. calculate and interpret the value, price return, and total return of an index;

What is a security market index?
A security market index is a means to measure the value of a set of securities in a target market, market segment, or asset class.

What are constituent securities?
The constituent securities selected for inclusion in a Security Market Index are intended to represent the target market.

How is a price return index measured?
A price return index reflects only the prices of the constituent securities in a security market index.

What is a total return index?
A total return index reflects the prices and the reinvestment of all income received since the inception of the index.

How are returns measured for a single period of an index?
The single-period price return of an index is the weighted average of the price returns of the individual securities

Source:

• CFA