{"id":1824,"date":"2019-09-12T13:33:00","date_gmt":"2019-09-12T13:33:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=1824"},"modified":"2026-02-10T08:24:21","modified_gmt":"2026-02-10T08:24:21","slug":"security-market-index","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/security-market-index\/","title":{"rendered":"Security Market Index"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Assuming an index is made up of dividend-paying stocks, what type of index would likely post higher long-term returns?\",\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is B.\\n\\nA total return index includes both capital gains and the reinvestment of dividends paid by the stocks in the index. Over the long term, reinvested dividends can significantly boost returns, especially for dividend-paying stocks. A price return index only reflects price changes and does not account for dividends. Therefore, a total return index typically posts higher long-term returns.\"\n    },\n    \"suggestedAnswer\": [\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"Price return index.\"\n      },\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"Total return index.\"\n      },\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"Neither, price and total returns should be exactly equal.\"\n      }\n    ],\n    \"answerCount\": 3\n  }\n}\n<\/script>\n\n\n<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/qBqq7dMkZwY\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>A security market index represents a given security market, market segment, or asset class, usually constructed as portfolios of marketable securities, known as constituent securities.&nbsp; Indexes help investors track performance and risk, benchmark active managers, and invest in broad markets at low costs.<\/p>\n<p>An index may have two versions: a price return index, which tracks only the price of constituent securities, and a total return index, which accounts for reinvestment of interest, dividends, and other distributions.<\/p>\n<blockquote>\n<h3><strong>Question<\/strong><\/h3>\n<p>Assuming an index is made up of dividend-paying stocks, what type of index would likely post higher long-term returns?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">Price return index.<\/li>\n<li data-tadv-p=\"keep\">Total return index.<\/li>\n<li data-tadv-p=\"keep\">Neither, price and total returns should be exactly equal.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>B<\/strong>.<\/p>\n<p>A <strong>total return index<\/strong> includes both the capital gains (price appreciation) and the reinvestment of dividends paid by the stocks in the index. Over the long term, reinvested dividends can significantly boost returns, especially for dividend-paying stocks.<\/p>\n<p>A <strong>price return index<\/strong>, on the other hand, only reflects the changes in the prices of the stocks and does not account for the dividends paid out.<\/p>\n<p>Since the total return index captures both price gains and dividends, it would typically post higher long-term returns compared to a price return index.<\/p>\n<\/blockquote>\n\n\n<!-- BOTTOM CTA \u2013 Refined Version -->\n<div style=\"text-align:center; background-color:#f4f6f9; padding:35px 20px; border-radius:12px; margin-top:40px;\">\n\n  <a href=\"https:\/\/analystprep.com\/free-trial\/\"\n     target=\"_blank\"\n     rel=\"noopener noreferrer\"\n     style=\"\n       display:inline-block;\n       padding:14px 34px;\n       background-color:#3b6fd8;\n       color:#ffffff;\n       border-radius:50px;\n       font-size:16px;\n       font-weight:600;\n       text-decoration:none;\n       margin-bottom:18px;\n     \">\n     Start Free Trial\n  <\/a>\n\n  <p style=\"max-width:700px; margin:0 auto; font-size:16px; line-height:1.6; color:#333;\">\n    Strengthen your CFA Level I equity preparation with exam-style security market index questions, structured explanations, and timed practice designed to improve conceptual clarity and retention.\n  <\/p>\n\n<\/div>\n\n","protected":false},"excerpt":{"rendered":"<p>A security market index represents a given security market, market segment, or asset class, usually constructed as portfolios of marketable securities, known as constituent securities.&nbsp; Indexes help investors track performance and risk, benchmark active managers, and invest in broad markets&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8],"tags":[],"class_list":["post-1824","post","type-post","status-publish","format-standard","hentry","category-equity","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - 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