An equity index composed of value stocks, identified by their price-to-earnings ratios, is best described as a: a)sector index. b)style index. c)fundamental weighted index. the answer is b. thought it was C can anyone explain why b is correct. Could not understand rational explanation.
Fundamental indexes would include a weighting by a metric like absolute revenue, profit, assets, equity rather than a relative P/E ratio.
The ratio above does include only selected value stocks whichs is equivalent to a certain investment style.
Style indices are classified by:
- investing style (value/growth);
- market capitalization (small cap/medium cap/large cap); or
- a combination of the above (ex. small cap value).
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