In an index where weights are determined by market capitalisation, the larger a company's market capitalisation, the greater its weight.

• A. True
• B. False
• C. Sometimes true
• D. Never

Answer: (A)

In a market-capitalisation weighted index, each stock’s weight is proportional to its market value relative to the total market value of all index constituents. Because the index aims to reflect the overall size of each company, larger market capitalisations command larger weights. The weight is calculated as the company’s market cap divided by the sum of market caps of all included companies. Market cap itself is price per share times shares outstanding, though some indices use float-adjusted market cap (which uses only shares available for trading). As prices and shares change, weights drift and the index is periodically rebalanced to keep weights aligned with current market values. So the statement is true.