Lesson 12 of 12 · All lessons in this module
  1. Money-weighted return
  2. Time-weighted vs money-weighted returnVideo lesson
  3. Which return to report: managers, investors and GIPS
  4. Integrated cases: balance tables, money-weighted and time-weighted returns
  5. What an index is: value, price return and total returnVideo lesson
  6. Index objectives, custom indexes and choosing a version
  7. Building an index: target market, constituents and weighting
  8. Price-weighted and equal-weighted indexesVideo lesson
  9. Market-cap, float-adjusted and fundamental weightingVideo lesson
  10. Rebalancing, reconstitution and what indexes are used for
  11. Rebalancing in shares, weight drift and reconstitution rules
  12. Integrated cases: one market, three weightings and a stock split

This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.

Lesson 12 of 12 · 15 min

Integrated cases: one market, three weightings and a stock split

The same four stocks give three different index returns under price, equal and market-cap weighting, and a stock split changes the divisor and weights of the price-weighted index only.

In short

  • Price-weighted: value = sum of prices ÷ divisor; the return is the change in the sum of prices (dividends added for a total return).
  • Equal-weighted: the first-period return is the simple average of the constituents' returns; later periods need the drifted weights.
  • Market-cap-weighted: return = change in total market value (plus dividends in currency, for total return) ÷ starting value.
  • A split halves a stock's price and doubles its shares. It resets the price-weighted divisor and shrinks that stock's price weight; it leaves the equal-weighted and cap-weighted indexes' values and weights unchanged.
  • The price-weighted index is therefore the one most affected by a split; the others show no mechanical effect at all.

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