Home  >  115 CFA  > Equity Investments - Reading 37 - 1. Index Definition and Calculations of Value and Returns

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