Each stock's rate of return in a given year consists of a dividend yield (which might be zero) plus a capital gains yield (which could be positive, negative, or zero). Such returns are calculated for all the stocks in the S&P 500. A weighted average of those returns, using each stock's total market value, is then calculated, and that average return is often used as an indicator of the "return on the market."

Question

BlackTom AI · Accepted Answer

The statement describes that each stock's return in a year equals its dividend yield plus its capital gains yield, and that a weighted average of these returns is computed using each stock’s total market value to indicate the market's return.
Option 1: True — This is correct. The total return of a stock is the sum of its dividend yield and its capital gains yield. When you take a weighted average of all stocks’ total returns, weighting by each stock’s market value (market capitalization), you obtain a market-wide measure that reflects the performance of the overall market (i.e., the return on the market). This is the standard approach used in finance to derive a value-weighted market return, as opposed to a simple unweighted average, because larger companies exert more influence on the market’s overall performance.
Option 2: False — This would be incorrect because the statement is not asserting an unweighted average or an alternative method; it explicitly states a weighted average by each stock’s total market value. The description matches the conventional, value-weighted calculation used to represent the market return. The only potential caveat is that in practice, some indices use free-float adjustments or other refinements, but the core idea of a market-return measure being a weighted average of individual total returns remains true.

View Explanation

Log in for full answers

Similar Questions

In a consumer society, many adults channel creativity into buying things

Economic stress and unpredictable times have resulted in a booming industry for self-help products

People born without creativity never can develop it

A product has a selling price of $20, a contribution margin ratio of 40% and fixed cost of $120,000. To make a profit of $30,000. The number of units that must be sold is: Type the number without $ and a comma. Eg: 20000

Which of the following statement regarding cost is correct:

Under the assumptions used in cost-volume-profit analysis, as the activity increases:

The CVP and break-even analysis are supported by a range of important assumptions. Which of the following is not an assumption of the CVP:

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler