For the ISEQ Overall Index, the weight of each quoted stock is related to its

• A. market capitalisation.
• B. profitability.
• C. size.
• D. share price.

Answer: (A)

Weighting by market capitalisation means each stock’s influence on the index moves in proportion to its total market value. Market capitalisation is calculated as the current share price multiplied by the number of shares outstanding. In a capitalization-weighted index like the ISEQ Overall Index, bigger companies have a larger weight, so the movements of a few large firms can drive most of the index’s changes. Profitability describes how well a company performs, not how large it is in the market; a stock’s share price alone isn’t the weighting basis in this scheme, and “size” in this context is effectively measured by market capitalisation. So the weight is related to market capitalisation.