An investor purchases 1,000 shares of each of the stocks in the Dow Jones Industrial Index at their closing prices (ignore transactions costs). On a total return basis, if the index stocks remain the same, this portfolio will certainly: A. perform exactly like the index over time. B. outperform the index over time. C. underperform the index over time. D. perform better than the index over some periods, and worse over others. I picked A but the answer is B. Is it because index does not incorporate dividends?
Yes. Although the question should have stated dividends will be reinvested.